Tonkin v Revenue and Customs (INHERITANCE TAX - employee benefit trust - scheme entered into to pay a bonus in a way that avoided income tax and NICs - Appellant accepted that scheme ineffective and that income tax and NICs are due - whether an additional charge to inheritance tax under IHTA 1984, s 94 (charge on participators in a close company) - whether the effect of IHTA 1984, s 94(2)(a) is to prevent an apportionment) [2025] UKFTT 750 (TC) (19 May 2025)

Tonkin v Revenue and Customs (INHERITANCE TAX - employee benefit trust - scheme entered into to pay a bonus in a way that avoided income tax and NICs - Appellant accepted that scheme ineffective and that income tax and NICs are due - whether an additional charge to inheritance tax under IHTA 1984, s 94 (charge on participators in a close company) - whether the effect of IHTA 1984, s 94(2)(a) is to prevent an apportionment) [2025] UKFTT 750 (TC) (19 May 2025)

Section 94(2)(a) of the Inheritance Tax Act 1984 applies because the payment to Ms Tonkin was subject to income tax as employment income, so no apportionment for inheritance tax arises. The transfer of value by the company was attributable to a payment to Ms Tonkin, and that payment was taken into account for income tax purposes. Therefore, the appeal is allowed and the inheritance tax charge is not due.

Citation
[2025] UKFTT 750 (TC)
Parties
Appellant: Annette Tonkin; Respondents: The Commissioners for His Majesty's Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
19 May 2025
Procedural Posture
Tax Appeal (inheritance Tax) / First Tier Tribunal Decision
Outcome
Appeal allowed
Legal Topics
Inheritance Tax, Employee Benefit Trusts, Tax Avoidance Schemes, PAYE, National Insurance Contributions, Close Companies
Tax Law Inheritance Tax Employee Benefit Trusts Tax Avoidance Schemes PAYE National Insurance Contributions Close Companies

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Parties

Annette Tonkin

Appellant

The Commissioners for His Majesty's Revenue and Customs

Respondents

Procedural Posture

Tax Appeal (inheritance Tax) / First Tier Tribunal Decision

Legal Issues

  1. 1 Whether an additional charge to inheritance tax arises under IHTA 1984, s 94 in respect of a failed employee benefit trust scheme
  2. 2 Whether IHTA 1984, s 94(2)(a) prevents apportionment where the payment is subject to income tax
  3. 3 Whether IHTA 1984, s 12 prevents there being a transfer of value

Ratio Decidendi

Section 94(2)(a) of the Inheritance Tax Act 1984 applies because the payment to Ms Tonkin was subject to income tax as employment income, so no apportionment for inheritance tax arises. The transfer of value by the company was attributable to a payment to Ms Tonkin, and that payment was taken into account for income tax purposes. Therefore, the appeal is allowed and the inheritance tax charge is not due.

Court Disposition

Appeal allowed

Orders

  • Notice of determination for inheritance tax under IHTA 1984, s 94 set aside
  • No inheritance tax charge arises on the Appellant in respect of the scheme