In Alberto Nader, Alison Nader, Harold Dickins & Ors v HMRC [2019] TC06524 the First Tier Tribunal found that a series of transactions designed to reduce the deceased's estate by creating a loan to an offshore trust was ineffective in reducing the IHT due on her death.
A ‘transfer of value’ is a disposal made by an individual which results in the value of their estate being reduced.
- S10(1) IHTA 1984 provides that there is no transfer of value where a disposition is not intended to confer gratuitous benefit on anyone and is made in a transaction at arm’s length between persons not connected with each other.
A few weeks before her death Miss Dickins entered into a scheme which involved borrowing money to buy a life income interest in an offshore trust, as part of a series of transactions. Her estate was valued at just over £1million.
- The idea was that the value of her estate was reduced by the loan (for £1m) which was owed to the trust by her death and was distributed to her beneficiaries post death.
- HMRC argued that Miss Dickins’ estate was not reduced by the loan and the purchase of the life interest for £1m involved a transfer of value or, alternatively, that she was a settlor of the offshore trust. They raised determinations to IHT accordingly.
- Miss Dickens’ executors and beneficiaries argued the provisions of s10 IHTA applied to prevent a transfer of value on the basis there was no intention to confer a gratuitous benefit when she bought the life interest as she paid market value for it.
The FTT dismissed the appeal:
- The £1m assigned to and paid for the income interest was not market value within s160 IHTA.
- The burden of proof as to that market value lay with the appellants and they failed to establish that there was any market or potential purchasers for the interest.
- Even in making a statutory assumption that a sale of the interest took place, its value must be nil and as a result there had been a transfer of value of £1m by Miss Dickens.
- S10 did not apply to except the transfer of value:
- Miss Dickens undertook a series of transactions which was intended to confer a gratuitous benefit, on the beneficiaries under her Will, and
- her acquisition of the income interest was not at arm’s length, it was part of a pre-packaged sequence of events designed to achieve an IHT saving.
Though not necessary to determine the case, the judge addressed HMRC’s assertion that Miss Dickens was a settlor of the offshore trust. He distinguished the definition of ‘settlor’ and ‘settlement’ for IHT from that for income tax, where an element of bounty is required. He found Miss Dickens had indirectly provided the funds for the trust and therefore was its settlor for IHT purposes.
Comment
Successful death-bed IHT planning has always been difficult to achieve. Coupled with the fact that IHT is generally the last thing individuals want to be thinking about at this stage in their lives, the case for taking advice before ill-health forces the issue is reinforced by this decision.
Links to our guides:
IHT: estate planning checklist
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Alberto Nader, Alison Nader, Harold Dickins & Ors v HMRC [2019] TC06524
