Summary

A ‘home loan scheme’ was unsuccessful in achieving its inheritance tax (IHT) objective as the agreement for the sale of the house by its owner to settlement trustees was held to be void, and it followed that the gift of a loan to the vendor’s children was also void.

Background

An individual (JSH) lived in a freehold house in London. In 2002, he entered into IHT planning arrangements (the ‘home loan scheme’) to remove the value of JSH’s home from his estate for IHT purposes, whilst enabling him to continue to live in the home rent-free for the rest of his life. 

A trust deed was entered into on 21 March 2002, under which JSH established the trust with a nominal sum of £10. The Trustees were directed (among other things) to