Judgment summary
Lexgreen Services Limited appealed against a First-tier Tribunal decision dismissing its challenge to an HMRC determination that it was liable, as settlor, for a ten-year periodic charge to inheritance tax on a trust it had established. The Upper Tribunal was asked to decide a single question of statutory construction: whether section 201(1)(d) of the Inheritance Tax Act 1984, which imposes secondary liability on a settlor 'where the transfer is made during the life of the settlor' and the trustees are non-UK resident, extends to a settlor which is a company.
The Tribunal also considered a new argument raised by the Appellant's representative, Mr Armstrong, that section 2(1) IHTA, which limits chargeable transfers to those made by 'an individual', prevents any IHT liability from attaching to a company absent express statutory provision.
The Tribunal rejected both arguments and dismissed the appeal, holding that section 201(1)(d) applies to a corporate settlor such as Lexgreen.
Background
Lexgreen established a trust in 2005 (the Trust), with trustees resident in Jersey [1]. In 2020, HMRC issued a notice of determination to Lexgreen stating that it was liable to inheritance tax in relation to a ten-year periodic charge to inheritance tax on the Trust [1]. HMRC upheld that decision following a statutory review [1].
Lexgreen appealed to the First-tier Tribunal (Tax Chamber), which dismissed the appeal in a decision issued on 21 August 2025 [2]. The facts were not in dispute and were not material to the issue of statutory construction to be determined [12].
The FTT decided that liability under section 201(1)(d) extends to a settlor which is a company, provided the company is a 'live' company at the time of the relevant contribution to the trust, and there was no suggestion that Lexgreen had not remained a live company from incorporation until HMRC's determination [14]. The FTT granted permission to appeal on the sole ground that it erred in law in concluding section 201 applied to companies [15]. On the appeal to the Upper Tribunal, Lexgreen was represented by Mr Armstrong, a director, rather than counsel, and he raised a new substantive argument not made before the FTT [15].
Core dispute
The core issue was whether the reference in section 201(1)(d) IHTA 1984 to a transfer 'made during the life of the settlor' extends to a transfer made by a settlor which is a company [13].
A further argument was raised for the first time on appeal: that because section 2(1) IHTA defines a chargeable transfer as a transfer of value made 'by an individual', no IHT can ever be charged in respect of a transfer by a company such as Lexgreen unless an express provision imposes it [19], [22]-[24]. If correct, this would have been determinative in Lexgreen's favour without needing to resolve the 'life' point [20].
The Appellant also argued, as before the FTT, that the use of the word 'life' in section 201(1)(d) precludes application to a corporate settlor, relying on the general character of IHT as concerned with 'life and death' [21], [56].
Court findings
On the section 2(1) argument, the Tribunal held that the special charging provisions in Chapter III of Part III of the IHTA (including the ten-year periodic charge under section 64) operate independently of the requirement in section 2(1) that a chargeable transfer be made by an individual, because section 2(3) treats occasions of charge under Chapter III as chargeable transfers, and section 3(4) treats the happening of such events as the making of a transfer of value [33]-[38]. The Tribunal firmly rejected the suggestion that section 2(3) was merely administrative [39], and rejected related arguments based on sections 64 and 66 [40]-[41].
On the 'life' issue, the Tribunal accepted that 'settlor' in section 44(1) IHTA, read with the Interpretation Act 1978, is in principle capable of including a company [44]. It found that the ordinary meaning of 'life' is, in principle, capable of referring either to a natural person's life or to the duration of an inanimate thing such as a company, citing dictionary definitions and judicial usages of 'life of the company' [46]-[50].
The Tribunal held that the answer depended on the purpose and context of section 201(1)(d), read together with section 204(6). Section 201(1)(d) operates as a fallback secondary liability, engaged only where the trustee (primarily liable) has not paid tax when due and the trustees are non-UK resident [58]-[62]. The Tribunal considered it unlikely that Parliament intended to narrow this fallback recovery mechanism by excluding corporate settlors, which would increase the risk of non-collection of unpaid tax [64]. It also noted that sections 201(4) and 204(6) do not limit 'person' to individuals [65].
The Tribunal rejected two subsidiary arguments: that the close company provisions in Part IV IHTA show express drafting is needed for company IHT liability [67]-[69], and that the 2025 Finance Act amendment to section 272 (clarifying that references to a settlor being alive or dying include a body corporate being in existence or ceasing to exist) implied the prior law excluded corporate settlors, noting the Explanatory Notes stated the amendment 'clarifies the existing law' [70]-[73].
Outcome
The Upper Tribunal concluded that section 201(1)(d) IHTA 1984 applies to a settlor such as Lexgreen which is a body corporate [74]. The appeal was dismissed [75].
Major issues / areas of contention
- Whether section 2(1) IHTA 1984, which confines a chargeable transfer to a transfer of value made by an individual, precludes any IHT liability arising in respect of a company absent express provision.
- Whether the phrase 'during the life of the settlor' in section 201(1)(d) IHTA 1984 extends to a settlor that is a corporate body.
- Whether the close company provisions in Part IV IHTA 1984 indicate that express drafting is required whenever a company is to bear IHT liability.
- Whether the Finance Act 2025 amendment to section 272 IHTA (clarifying references to a settlor's life or death for corporate settlors) implies that, before its enactment, a corporate settlor could not have a 'life' for the purposes of section 201(1)(d).