In March 2023 the First-tier Tribunal (FTT) judged that a debt created using loan notes to reduce the value of a trust was not deductible in calculating inheritance tax (IHT) on the beneficiary’s death.

The deceased had been a beneficiary of a family interest in possession trust.  This trust held a flat in Poole, two investment bonds and had indemnified loan notes issued by a nominee to such an extent that it was essentially the debtor. The executors argued that the value of the loan notes should be deducted from the deceased’s estate for IHT valuation purposes.

The FTT found that under the arrangements, although the loan notes were a liability, and loan notes were permitted to be used by the recipients, their value for IHT purposes was nil as the “whole consideration given for the loan note debt consisted of property derived from” the deceased, so no deduction could be given.

The decision can be found at: The Finance & Tax Tribunal (tribunals.gov.uk)

We are experienced with inheritance tax planning and this case helps show that certain planning arrangements may not succeed, especially where complex arrangement are contemplated.  We can assist with effective inheritance tax planning.  Please contact us to find out how we can assist.