In Marisa Lincoln v HMRC [2024] TC09306, the First Tier Tribunal (FTT) found that an interest in properties situated in Malta held by a deceased individual was subject to UK Inheritance Tax (IHT).
Martin Falzon, who was born in Malta, died on 25 April 2015. He had lived in the UK for the prior 37 years.
- In March 2019, HMRC issued a notice of determination to Marisa Lincoln, Mr Falzon’s executrix. This concluded that Mr Falzon was Deemed UK-domiciled due to him having been UK Tax resident in at least 17 of the prior 20 tax years.
- A late appeal against this decision to the First Tier Tribunal (FTT) was rejected, meaning that Mr Falzon was conclusively UK-domiciled at the time of his death.
- Prior to his death, Mr Falzon had inherited a 1/6 undivided share of properties located in Malta, from his parents.
- In June 2020, HMRC issued a further determination that the foreign properties formed part of Mr Falzon’s Estate for Inheritance Tax (IHT) purposes.
- Ms Lincoln Appealed to the FTT.
Ms Lincoln's main argument was that the provisions of IHTA 1984 were inappropriate to apply as they were designed to apply to UK situs property and were unsuited to real property in Malta, which is governed by a very different legal code. The FTT noted that Ms Lincoln said that applying the provisions of IHTA 1984 to this case was like “trying to eat soup with a fork”.
The FTT found that:
- Mr Falzon had beneficial entitlement to the foreign properties.
- Expert evidence on Maltese law indicated that the deceased enjoyed “full ownership of his share from the entire estate” and could “dispose of it”, subject to the right of pre-emption.
- This was supported by wording made by Mr Falzon in a special power of attorney: he considered he enjoyed beneficial entitlement.
- While there were rent control restrictions in respect of the properties, these did not deprive Mr Falzon of beneficial entitlement, they merely diminished the value of that entitlement.
- The foreign properties were not Settled property.
- There was no evidence of a trust existing under Maltese law, or any intention to create a trust.
- It was necessary to consider what the position would have been under UK law: there would have been a trust in respect of the land under the Law of Property Act 1925 s.36(1) and the Trustee Act 1925 s.34(2) as the number of legal owners of land in England is restricted to four people, and in this instance, there were six beneficial owners.
- Such a trust under UK law did not meet the definition of settlement in s.43(2) IHTA 1984.
- The foreign properties were not excluded property situated outside the UK: Mr Falzon had a deemed domicile in the UK.
- The foreign properties were not a reversionary interest, and therefore not excluded property.
- Although there was an usufruct prior to Mr Falzon’s mother’s death, this no longer encumbered Mr Falzon’s interest at the time of his death.
The appeal was dismissed.
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