Recent case decisions have changed how the tax system treats many family arrangements. We explain, in plain English, why this matters if you set up a trust, inherited through one, or act as an executor.
Two notable rulings — Afsha Chugtai v HMRC [2025] TC09495 and several scheme-related cases such as Elborne and the Pride decision — show tribunals look beyond neat paperwork.
What counts is real life: who benefits, who controls assets, and whether the use matches the written purpose.
That means the seven-year rule can fail where benefit is retained, and disputes often hinge on property value and evidence. We will show how tribunals treated a property trust and a bank account trust, and why valuations and records matter.
We aim to give practical planning tips, clear steps on what to document, and when to seek professional advice. If your arrangement might need registration, see the official guidance on registering a trust.
Key Takeaways
- Recent decisions shift focus to benefit, control and real use of assets.
- A neat deed alone does not prevent inheritance tax liability.
- The seven-year window is not a guaranteed shield if benefit continues.
- Valuations, evidence and clear records often decide the outcome.
- Get timely advice and document trustee actions carefully.
- Some older home‑loan and double‑trust schemes remain under scrutiny.
Chugtai v HMRC highlights ‘gifts with reservation’ risk for IHT trusts
We explain the key facts and what they mean for family planning. The judge found that use, not just paperwork, decides whether trust assets count as part of an estate.
What the panel decided and why the appeal failed
The panel accepted evidence that Mohammed continued to enjoy the assets in the seven years before his death. That led to a chargeable estate calculation instead of a clean exclusion.
The two trusts and the numbers
Two trusts were set up in 2000: the Henley Road property and an Abbey National account later moved to Santander. HMRC’s determination produced an £843,950 chargeable estate made up of a £401,711 free estate, a £380,000 property value and £62,239 in the bank account.
| Element | Amount | Reason | Effect |
|---|---|---|---|
| Free estate | £401,711 | Personal assets | Part of total |
| Property (Henley Road) | £380,000 | Occupied by settlor | Included |
| Santander account | £62,239 | Used for personal spending | Included |
| Trust assets pulled in | £442,239 | Continued benefit | Increased IHT |
Why continued use mattered and next steps
Evidence showed he lived in the house and treated the account “as if it were his own.” That practical use defeated exclusion.
What this means for your family: trustees must show genuine exclusion. If parties cannot agree property value, they can ask a tribunal to determine the value, which may extend estate administration.
For more on allowances and limits, see our guide to the inheritance tax limit in the UK.
hmrc tribunal iht trusts and the rules UK families often misunderstand
Recent cases show that real-life use matters more than neat deeds. We explain three simple rules that change planning in practice.
GROB rules under Finance Act 1986 section 102
Give, but keep using it, and the law may treat the asset as still yours. Section 102 applies where a gift is made but the donor retains a practical benefit.
“You can’t have your cake and eat it.”
Seven-year rule and potentially exempt transfers
The seven-year rule helps when gifts are genuine. If a gift is a true potentially exempt transfer, surviving seven years usually removes inheritance tax liability.
But if the donor keeps meaningful use — living in a home rent-free or controlling a bank account — the relief will fail. The law looks at whether the donor enjoyed the asset in the final years of their life.
Running the deed properly: trustee actions that can undermine planning
Simple trustee errors often undo good planning. Common pitfalls include informal use of property, paying the settlor’s bills from trust funds, and mixing accounts.
| Action | Risk | Fix |
|---|---|---|
| Living in gifted home | Gift treated as retained | Charge market rent or surrender occupation |
| Using trust account | Personal benefit shown | Keep separate bank accounts and records |
| No meeting minutes | Decisions look informal | Record trustee resolutions and distributions |
When to get advice: if the settlor still lives in the property, if family bank accounts are involved, or when disputes arise. For wider context on surprise bills from gifts see our guide to surprise inheritance tax bills.
Other tax tribunal outcomes: home loan and double-trust schemes under scrutiny
A few long‑standing planning arrangements have been tested again, with mixed outcomes for estates.
Elborne v HMRC offered relief for a 2003 home loan structure involving a £1.8m property and could have saved the estate roughly £700,000 in inheritance tax. HMRC has signalled an appeal, so certainty is not guaranteed.
How the home loan design worked
The basic idea was simple: move the property into one vehicle, create a loan note, then place that note into a second vehicle for the children.
This aimed to cut the property’s taxable value while still allowing occupation or benefit.
Why some cases failed
In Pride, tax authorities won because the court found the liability was artificially created and should not reduce estate value.
“The court looks at substance over form — was the debt real, or just a paper offset?”
Policy changes such as POAT, SDLT reforms and the 2006 trust rules have made similar planning far harder. If your family has a legacy scheme, gather deeds, loan notes, valuations and bank records and seek specialist advice before you file.
For practical steps on protecting property in a trust, see our guide on protecting property in trust.
Conclusion
What matters most is behaviour: who uses the asset, who controls it, and whether the written plan matches real life.
In Chugtai, retained benefit in the seven years before death pulled property value back into the estate. Other scheme cases show mixed outcomes — some succeed, others fail on anti‑avoidance grounds.
Practical steps: review the trust deed, record trustee decisions, keep accounts separate and get clear valuations. Gather bank statements, rent records and trustee minutes early after a bereavement.
For tailored guidance and further inheritance tax and trust funds expert, contact a specialist. Good planning still protects children and beneficiaries, but it must be backed by consistent trustee conduct and clear records.