Can a company be liable for inheritance tax?

The First-tier Tribunal (FTT) heard a case about the phrase "during the life of the settlor" when the settlor is a corporate entity, not an individual.

Facts:

Lexgreen Services Ltd. (Lexgreen) was incorporated on 20 May 1996. It signed a deed establishing a remuneration trust in 2005, appointing a company with a Jersey address to act as trustee. Lexgreen was named as the founder and later contributed £6,525,000 to the trust.

On its tenth anniversary in 2015, an inheritance tax (IHT) liability arose based on the value of the assets in the trust at that time under Section 64 of the Inheritance Tax Act (IHTA) 1984. The amount of the charge is £155,466.27 plus any accrued interest. 

In December 2020, HMRC issued a notice of determination, holding the company liable for the tax based on Section 201(1)(d) IHTA. This section makes the settlor liable for the tax if the transfer was made "during the life of the settlor". The core legal issue is whether the phrase "during the life of the settlor" can apply to a corporate entity, which the appellant argues does not have a "life" in the same way a person does. The appellant claims that because a company cannot "live" or "die", it cannot be held liable under this section. 

Decision: 

The FTT dismissed the appeal, ruling that a company can indeed be liable for IHT as a settlor under Section 201(1)(d) of the IHTA 1984. The Judge rejected the appellant's argument that "life" in the statute must refer exclusively to human life. Instead, it adopted a broader interpretation consistent with the purpose of the legislation. It reasoned that "the life of the settlor" in the context of a corporate settlor means "at a time when the settlor is a live company". This aligns with the dictionary definition of "life" as the "period for which an organisation lasts".

The Tribunal also found it highly improbable that Parliament intended to create a significant loophole by implicitly excluding corporate settlors from liability. It reasoned that if such an exclusion were intended, the law would have been drafted to explicitly state, "In the case of a settlor who is an individual…" The Court's interpretation avoids this "odd and difficult interpretation" and aligns with the principle that legislation should be construed in a way that makes it coherent and workable.

Moreover, recent changes to the Finance Act 2025, which explicitly define a corporate settlor's "being alive or dying" as "being in existence or ceasing to exist," supported its reasoning.

Implications:

The primary implication is the definitive ruling that a company can be held liable for IHT as a settlor under Section 201(1)(d) IHTA 1984. The Court's interpretation of "life" to mean the period a company is "live" or in existence clarifies a previously ambiguous area of the law. This closes a potential loophole where corporate settlors might have attempted to argue they were not liable for IHT on the grounds that they did not have a "life", or at least in the biological sense.

The case reinforces the principle that statutes should be interpreted according to their purpose, rather than a strictly literal reading of individual words that could lead to an absurd or otherwise unworkable outcome. The Court's reasoning emphasised that the law intended to ensure that tax could be collected, and such a narrow interpretation would have frustrated that purpose.

Finally, the ruling provides important guidance for tax practitioners and companies. It confirms that a company's period of existence, from incorporation to dissolution, is its "life" for the purposes of IHT liability. This means companies acting as settlors of trusts, especially those with non-resident trustees, must be aware of their potential liability for IHT charges.