Home and Dry: How Elborne Kept the Taxman at the Door

On 13 July 2026 the Court of Appeal held that a £1.8 million home loan scheme, implemented in 2003 before the modern anti-avoidance regime, was effective for Inheritance Tax (IHT) purposes – saving the estate nearly £700,000 in IHT.

Background

Mrs Elborne implemented the scheme in 2003, a type of arrangement widely used in the late 1990s and early 2000s to remove the value of a home from the owner's estate for IHT purposes while she continued to live in it. She died in January 2011, and HMRC challenged the arrangement. After mixed results at the First-tier and Upper Tribunals, HMRC's appeal to the Court of Appeal was unanimously dismissed.

The Scheme

Mrs Elborne sold her property at market value (£1.8 million) to the trustees of a settlement in which she held a beneficial life interest (the Life Settlement), receiving a promissory note of equivalent value (the Note) in return. She then gifted the Note to trustees of a new settlement for the benefit of her children only, not herself (the Family Settlement). She continued to reside in the property rent-free until her death, more than seven years later. The intention was that, on death, the property would fall within her estate via the Life Settlement interest, but the £1.8 million Note would stand as a corresponding liability, reducing the net taxable value. The gift of the Note was a potentially exempt transfer, becoming free of IHT once she survived seven years – which she did.

HMRC's grounds

Debt deduction rule (s103 Finance Act 1986):

This anti-avoidance provision cancels a debt deduction where the debt's consideration derived from property the deceased had herself owned. It targets the scenario where someone gives away money, and the recipient simply lends that same money back to them. Left unchecked, this lets the same value escape tax twice – the original gift escapes IHT after seven years, and the estate still deducts the loan as a debt at death, even though the deceased never truly parted with the money. HMRC argued the Note fell into this pattern, but this required Mrs Elborne herself to have incurred the debt in question. The Court held that it was the trustees of the Life Settlement who incurred the debt, not Mrs Elborne. She was a seller receiving payment, not a borrower repaying herself, so s103 did not apply.

Gifts with reservation of benefit (s102 Finance Act 1986):

HMRC argued this applied twice over – once to the Note, and again to the house. The Court rejected both arguments. On the Note, Mrs Elborne's continued occupation of the property had no bearing on the Family Trustees' future enjoyment of the gifted Note. On the house, her occupation was not a benefit reserved out of the gift of the Note, as HMRC argued, but came from her separate life interest in the Life Settlement, held from the outset of the arrangement.

Ramsay/Rossendale "commercial reality" principle:

This is not a statutory provision but a principle of interpretation under which courts sometimes look past the formal legal steps of a scheme and tax it according to its real-world substance. HMRC invoked Rossendale Borough Council v Hurstwood Properties [2021], arguing the steps should be treated in substance as one single arrangement to keep the house while avoiding tax. The Court disagreed, outlining HMRC's approach as "clearly untenable."

Conclusion

The Court dismissed HMRC's appeal, finding that Mrs Elborne and her advisers "succeeded in implementing an ingenious scheme." The scheme succeeded only because it predated the general anti-abuse rule introduced by the Finance Act 2013, which the Court indicated could in principle have been used to counteract such schemes.