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HMRC internal manual

Inheritance Tax Manual

Lifetime transfers: associated operations: Re Macpherson

The House of Lords case of Macpherson v IRC [1989] AC 159

As explained in IHTM14828, the House of Lords decision in Macpherson set out restrictions on which operations can be taken into account for the purposes of IHTA84/S268. In Macpherson the House of Lords was considering the application of what is now IHTA84/S10 (IHTM04161).

The case concerned two transactions affecting property in a discretionary trust (IHTM42002). The first transaction reduced the value of the property in the trust. This was followed, the next day, by an appointment of an interest in possession (IHTM16062) in the property.

It was agreed that the appointment of the interest in possession was a capital distribution that gave rise to a tax charge. The trustees argued that the reduction in the value of the settlement was only equal to the value of the property which had been reduced by the first transaction. HMRC argued that both transactions had to be taken together, giving rise to a larger reduction in value.

The House of Lords confirmed that, as a matter of fact, the appointment would not have been made if the first transaction had not taken place.

The trustees argued that as the first transaction, taken in isolation, was not intended to confer a gratuitous benefit, it was covered by what is now IHTA84/S10 (IHTM04161). They contended that the first transaction should therefore be ignored when considering the reduction in the value of the settlement.

The House of Lords decided that, although the first transaction did not, by itself, confer a gratuitous benefit, the subsequent appointment did confer a gratuitous benefit. It held that the first transaction was made in a set of operations which were intended to confer a gratuitous benefit and therefore it was not covered by the predecessor of IHTA84/S10.

In explaining the judgment, Lord Jauncey said, at page 175H:

‘If an associated operation is not intended to confer such a benefit it is not relevant for the purpose of the subsection. That is not to say that it must necessarily per se confer a benefit but if must form a part of and contribute to a scheme which does confer such a benefit.’

He also explained that if the appointment had occurred first and the agreement which reduced the value of the property had occurred afterwards:

‘The agreement would undoubtedly have been associated with the appointment within the definition of s44 (now IHTA84/S268) but it would not have been a relevant associated operation since it would have contributed nothing to the conferment of the gratuitous benefit which had already been effected by the appointment.’