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 POA charge does not arise. However, as it is the loan and not the house that is subject to a reservation of benefit, the POA charge still arises as regards the house, as it is this asset that the individual previously owned. This is the unavoidable outcome given the structure of a home loan or double trust scheme should a reservation of benefit arise in the loan. If this is the outcome of the current litigation, the position will be reviewed once the litigation is settled (IHTM44103).