David Marks (Executor of Hilda Marks) v The Commissioners for HMRC
[2024] UKFTT 706 (TC)
Luis Carvajal & Anor v The Commissioners for HMRC
11 June 2024
[2024] UKFTT 651 (TC)
First-tier Tribunal
A mother guaranteed a loan to a trust she set up for her sons. After she died, HMRC tried to tax this guarantee. The court said the guarantee didn't reduce the mother's estate because she had a right to be repaid. Even though HMRC made a mistake with paperwork, they still weren't too late to make the claim because the sons didn’t correctly report the guarantee as a gift.
Key Facts
- •Appeal against inheritance tax determinations totaling £588,700.
- •Guarantee executed by Mrs. Fleet before her death securing a loan to a discretionary trust she settled.
- •Trust assets (secured by the charge) transferred to Mrs. Fleet's children.
- •HMRC issued determinations based on three alternative contentions, ultimately focusing on whether the guarantee constituted a lifetime transfer of value.
- •A certificate of discharge was issued in error by HMRC.
- •Appellants argued the certificate precluded further claims, the guarantee wasn't a lifetime transfer, and determinations were statute-barred.
Legal Principles
Inheritance tax is payable on transfers of value that aren't exempt.
IHTA 1984, Section 1 and Section 2(1)
A transfer of value occurs when a disposition reduces the value of a person's estate.
IHTA 1984, Section 3(1)
On death, inheritance tax is chargeable as if a transfer of value equal to the estate's value occurred before death.
IHTA 1984, Section 4(1)
A person can apply for a certificate of discharge; HMRC must grant it if the transfer is deemed to be on death or the transferor has died.
IHTA 1984, Section 239
After four years of payment and acceptance of tax, further proceedings are barred unless the tax loss was deliberate.
IHTA 1984, Section 240
In determining the value of an estate, liabilities are considered, except as otherwise provided. Liabilities for inheritance tax on the value transferred are included, but not other tax liabilities.
IHTA 1984, Section 5(3) and (4)
The likelihood of a guarantee being called is not determinative of whether it constitutes a transfer of value. Subrogation rights must also be considered.
Case law: UBS AG v HMRC; DB Group Services v HMRC; Barclays Mercantile Business Finance v Mawson; Inland Revenue Commissioners v Scottish Provident Institution
Outcomes
Appeals allowed.
Mrs. Fleet's guarantee did not constitute a lifetime transfer of value due to her subrogation rights, which offset the potential liability. The erroneous issuance of the certificate of discharge by HMRC further supported the appeal's success.
Ground 1 (Clearance Certificate) dismissed.
The certificate only applied to the deemed transfer of value on death, not any potential lifetime transfer. The Appellants' subjective belief regarding the certificate's scope was irrelevant.
Ground 3 (Statute-barred) dismissed.
The four-year limitation period in Section 240(2) did not apply because no account of the alleged lifetime transfer had been delivered to HMRC. The 20-year limitation would apply.
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