In Luis Carvajal and Anor v HMRC [2024] TC09248, the First Tier Tribunal (FTT) found that HMRC could not pursue underpaid Inheritance Tax (IHT) of £588,700 on an ineffective IHT planning arrangement as a clearance certificate had been issued by HMRC, in error.
On 16 May 2011, Mrs Fleet settled a trust as part of a deathbed tax planning arrangement which sought to reduce the value of her estate for Inheritance Tax (IHT) purposes by creating an artificial debt.
- As part of the arrangements, Mrs Fleet entered into a guarantee of up to £1,400,000, plus interest and costs.
- Mrs Fleet died on 24 May 2011 and the guarantee was called in.
- Luis and Nicholas Carvajal, Mrs Fleet’s executors, submitted an IHT account which included a Liability of £1,400,000 as a result of the above arrangements.
- This liability meant that no IHT was payable on the estate.
- In November 2018, while correspondence was ongoing with HMRC, the executors used Form IHT 30 to apply for a certificate of discharge concerning the IHT liability arising from Mrs Fleet’s death.
- The executors did not populate section B of the IHT 30 form that related to IHT liabilities on lifetime transfers.
- A clearance certificate was issued on 11 December 2018, unbeknownst to the HMRC officer who was dealing with the estate and interrogating the arrangements.
- On 17 June 2019, the same Officer issued determinations charging an additional IHT of £588,700.
- The executors Appealed to the First Tier Tribunal (FTT) because the determinations were not valid, due to the clearance certificate that had been issued by HMRC.
The FTT found that:
- In implementing the tax planning arrangements, Mrs Fleet did not make a Transfer of value for IHT purposes by simply executing a guarantee.
- The arrangements were ineffective in reducing the value of Mrs Fleet’s estate for IHT purposes.
- The clearance certificate issued in error by HMRC meant that HMRC was prevented from pursuing the underpaid IHT as far as it related to tax arising on Mrs Fleet’s death.
HMRC attempted to argue that the execution of the guarantee was a lifetime transfer of value for IHT purposes and therefore not covered by the clearance certificate which had been issued in error (as the certificate only related to IHT arising on death).
- The FTT concluded that there was no lifetime transfer made by Mrs Fleet on the execution of the guarantee.
The executors’ appeal was allowed.
Useful guides on this topic
Estates: Income Tax and Capital Gains Tax
How do executors deal with income and capital gains arising on the deceased’s estate? What allowances and reliefs are available?
IHT: Transfers of value
What is a transfer of value for Inheritance Tax (IHT) purposes?
IHT: Estate planning checklist
This checklist covers some of the essential planning points that taxpayers should know when planning for their estate and Inheritance Tax (IHT).
IHT: Loans and restrictions on liabilities against the estate
When are loans deductible from the estate on death? What restrictions are there? What anti-avoidance rules do I need to consider?
Probate: At a glance
When someone dies, it is often necessary to apply for probate. What is probate? When is probate needed? Who can apply for probate? What happens if someone dies without a will?
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