Background
Lexgreen Services Limited established a Jersey-resident trust in 2005. A ten-year periodic inheritance-tax charge arose on the trust, and HMRC determined in 2020 that Lexgreen was liable for that tax. HMRC upheld the determination on statutory review.
The First-tier Tribunal dismissed Lexgreen’s appeal. Lexgreen then appealed to the Upper Tribunal, contending first that a company could not be liable because section 2(1) of the Inheritance Tax Act 1984 refers to transfers made by an individual, and alternatively that section 201(1)(d), concerning transfers made “during the life of the settlor”, could not apply to a corporate settlor.
The Court’s Holding
The Upper Tribunal dismissed the appeal. It held that the periodic charge is imposed under the special charging provisions for settled property. Sections 2(3) and 3(4) treat an occasion on which tax is chargeable under those provisions as a chargeable transfer and as the making of a transfer of value. Accordingly, the individual-transfer requirement in section 2(1) did not prevent the charge or Lexgreen’s liability.
Section 201(1)(d) applied to a corporate settlor. “Settlor” includes any person and, under the Interpretation Act 1978, a person includes a corporate body unless a contrary intention appears. In its statutory context, “during the life of the settlor” could encompass the period during which a company exists. The provision supplies a limited, secondary means of recovery where non-UK-resident trustees have not paid tax due; its purpose supported including a live corporate settlor.
Key Takeaways
- A ten-year trust charge under Part III of the IHTA is not defeated by section 2(1)’s reference to an individual making a chargeable transfer.
- A company can be a settlor for section 201(1)(d) and can be secondarily liable while it remains in existence.
- The settlor’s liability arises only where the tax remains unpaid after it ought to have been paid and the statutory conditions are met.
Why It Matters
The decision confirms that HMRC may pursue a corporate settlor as a secondary recovery route for unpaid inheritance tax on a trust with non-UK-resident trustees. It rejects a construction that would exclude companies merely because the provision refers to the settlor’s “life”.