Mark McLaughlin highlights a case on an inheritance tax scheme involving the family home.
It is difficult to think of a scheme more strongly disliked by HM Revenue and Customs (HMRC) than the ‘home loan’ (sometimes referred to as the ‘IOU’) scheme for inheritance tax (IHT) purposes.
What was it?
The home loan scheme reached the peak of its popularity in the late 1990s and early 2000s. Broadly, the scheme typically involved the homeowner (e.g. Mr X) selling his residence to a trust (i.e. a life interest trust for him) for full market value. The trustees would give Mr X an IOU for the purchase price. Mr X would give the IOU to a life interest trust for (say) his adult children. Mr X would continue occupying the house by reason of his life interest under the first trust.
The IHT consequences were intended to be that on Mr X’s death his