The Short Lived Triumph Of Lady Ingram Ingram Schemes Today

Over the years, loopholes in legislation have been found that have allowed taxpayers to make tax savings. Unsurprisingly, HMRC has become aware of such loopholes and has taken steps to close them.

One such loophole is commonly referred to as an 'Ingram Scheme' based on the case which confirmed the validity of the arrangement before HMRC operated to limit the use of the scheme shortly after.

For those who set up an Ingram Scheme or individuals dealing with an Estate of a person whose assets were part of an Ingram Scheme, there are important considerations to be aware of to ensure the correct tax is paid; our Wills, Trusts and Probate Lawyers explore these considerations.

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What was the objective?

The most common objective in setting up an Ingram Scheme was to remove the family home's value from an individual or couple's Estate to reduce the Inheritance Tax liability.

The idea is that if the taxpayer did not own the family home, the value of the property at their death and any growth in the property's value since the scheme was set up would be outside of the Estate and not liable to inheritance tax.

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How did the Ingram Scheme work?

The scheme relied on the distinction between freehold and leasehold interests in property.

The freehold property owner would carve out a leasehold interest for their benefit, entitling them to live there, usually for a minimal rent. The freeholder would then give away the freehold interest in the property, usually to a trust to benefit their family and keep the leasehold interest to benefit themselves.

As a result, the value of the freehold interest would be outside of the Estate. Although the individual would still have the leasehold interest in their Estate, this interest is much less valuable and would decrease over time as the lease term is reduced.

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An Example

Mrs Myerson was a wealthy lady aged 80 who owned the freehold interest in Myerson Manor.

Mrs Myerson wanted to reduce the size of her taxable Estate. She granted herself a lease of Myerson Manor for a period of 10 years.

Mrs Myerson gifted the freehold interest, subject to the lease, to trustees to hold for the benefit of her children and grandchildren.

At this time, Myerson Manor was worth £1.5 million. Mrs Myerson died 8 years later when Myerson Manor was worth £2 million.

The value of the freehold interest of £2 million was outside of Mrs Myerson's Estate, and the leasehold interest, with 2 years until expiry, had minimal value.

HMRC's argument

In the Lady Ingram case, HMRC attempted to argue that the freehold interest Lady Ingram gifted away was subject to the gift with reservation of benefit rules under s.102 Inheritance Tax Act 1984, as Lady Ingram remained living in the property she had given away (thus retaining a benefit).

This would have meant that the full value of the freehold interest as at the date of death would be liable to Inheritance Tax as if it remained part of Lady Ingram's Estate. The House of Lords rules in Lady Ingram's favour.

Shortly after, HMRC extended the scope of s.102 to cover arrangements of this kind.

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Factors to consider today

Ingram schemes are scarcely set up today for land interests. However, some schemes are already in place and may require action.

Firstly, if you set up an Ingram scheme, you need to be aware of HMRC having closed the loophole and the impact of this on your Estate. It is possible to avoid the scheme being treated as a gift with reservation of benefit by making payment of Pre-Owned Asset Tax. This is complex, particularly if it requires retrospective investigation since the loophole closed.

Secondly, if you are dealing with an estate that appears to involve an Ingram Scheme arrangement, it is important that you make the correct disclosures to HMRC to ensure the correct payment of tax and distribution of assets.

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The experts in our Wills, Trusts, and Probate team have experience with these schemes and can offer further advice, contact us on:

01619414000

Hannah Owens

Associate

Hannah has 2 years of experience acting as a Wills, Trusts, and Probate solicitor. Hannah assists clients in dealing with taxable estates including cross-border estates, Trusts and estate planning, as well as advising on Court of Protection applications and Powers of Attorney.

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The Short-Lived Triumph Of Lady Ingram: Ingram Schemes Today

Hannah Owens - Associate