Q&A: Inheritance tax and the home loan arrangement: Elborne v HMRC

Up to 2004 an inheritance tax (IHT) planning arrangement was widely marketed designed to save liability on death in relation to the main residence. It was known as the home loan scheme and as far as I am aware expert opinion at the time thought that it should be successful.

How did the arrangement work?

The homeowner sets up a trust in which a life interest is retained and the home is then sold to the trust with the proceeds remaining as a debt due from the trustees.

The debt could be set up in various different ways: it could be a simple loan note without interest or in the most sophisticated version of the scheme it would be a relevant discounted security to be discharged at a date long in the future but with early repayment terms after the taxpayer died.

Did HMRC accept the validity...