IHTM44105 - Pre-owned assets: specific avoidance schemes: land - double trust or home loan scheme: loan not repayable until after the individual’s death

Where the terms of the loan are that the debt is only repayable after the death of the life tenant, the settlor still obtains a benefit that is referable to the gift.

This is because by signing up to a loan which was repayable only after their death, the individual has ensured that their continued occupation of their home cannot be disturbed. So whilst they no longer own the property, they have prevented the holder of the loan note from upsetting their enjoyment of the property. That is a benefit to them and one that arose directly from the terms of the loan that was given away. The benefit arises within the terms of FA86/Sch20/Para 6(1)(c), so the loan note should properly be regarded as subject to a reservation of benefit under FA86/Sch20/S102(1)(b). Alternative arguments have been put by taxpayers and the matter is being litigated.

On this basis, it would seem that the exemption in FA04/Sch15/Para11(5)(a) would apply so that the pre-owned assets (POA) charge does not arise in the loan note and as the loan note derives its value from the home’s value, the home will be exempt from the POA charge under FA04/Sch15/Para11(1)(b) as ‘other property deriving its value from the relevant property’.