Court of Appeal upholds 2003 'home loan' inheritance tax scheme in Elborne

On 13 July 2026 the Court of Appeal dismissed HMRC’s appeal in Mark Elborne and others v The Commissioners for HM Revenue and Customs, ruling that a “home loan” inheritance tax scheme set up in 2003 had done its job. Lady Justice Asplin, Lady Justice Andrews and Sir Launcelot Henderson found unanimously that the arrangement fell outside the anti-avoidance provisions HMRC relied on. Delivering the leading judgment, Sir Launcelot put it plainly: “In simple language, I consider that the scheme worked.”

The arrangement

Late in 2003, Leslie Elborne, who owned the Old Rectory in Seaton, Rutland, set up what is known as a home loan scheme. She sold the house, valued at £1.8 million, to the trustees of a life interest settlement in return for an unsecured promissory note of the same value. She then assigned that note to the trustees of a separate family settlement from which she was excluded, while carrying on as life tenant of the first trust and living in the property rent-free until she died in January 2011. That was more than seven years after the assignment, so the gift would ordinarily fall outside the inheritance tax net.

The point of the structure was to remove the value of the home from her taxable estate while letting her stay in it for life. According to reporting by Professional Adviser, variants of the scheme were sold widely in the early 2000s, and the estate in this case avoided a tax bill estimated at around £700,000.

How the case moved through the courts

HMRC challenged the planning after Mrs Elborne’s death, issuing notices of determination in February 2017. The First-tier Tribunal, in July 2023, rejected almost all of HMRC’s arguments but still dismissed the taxpayers’ appeal, finding that the Finance Act 1986 blocked the deduction of the promissory note liability from the value of the estate. In February 2025 the Upper Tribunal reversed the tribunal on that last point and threw out HMRC’s cross-appeal on every other ground. HMRC then took the case to the Court of Appeal.

Its central argument was that the £1.8 million promissory note should be disregarded when valuing the estate, and that both the note and the property remained caught by the gifts with reservation rules because Mrs Elborne kept living in the house. HMRC leaned on the Supreme Court’s decision in Rossendale Borough Council v Hurstwood Properties [2021], which said tax law should be applied to the commercial reality of a transaction rather than its form.

The court disagreed. It held that legislation treating a life tenant as beneficially entitled to trust property for inheritance tax does not also treat liabilities incurred by the trustees as the life tenant’s own, so the debt had not been incurred by Mrs Elborne within the meaning of the rules HMRC cited. It also found that her continued occupation flowed from her life interest under the first trust rather than from the assignment of the note, and it called HMRC’s reliance on Rossendale “clearly untenable”, according to ICLG.

Why it matters

Sir Launcelot noted that the planning pre-dated both the disclosure regime for tax avoidance schemes and the General Anti-Abuse Rule introduced by the Finance Act 2013, and observed that the GAAR “could in principle have been deployed to counteract schemes of the present type” had it existed at the time. That is the practical takeaway. The decision confirms how these historic structures are treated, but it turns on a period of law that later reforms have closed off. Families and their advisers still holding legacy home loan arrangements from the early 2000s now have clearer authority on where they stand; anyone contemplating something similar today would face a very different rulebook.

Sources: ICLG; Professional Adviser.