Share of Maltese Properties Liable to IHT

A deceased man's sister and executor has failed to convince the First-tier Tribunal (FTT) that no Inheritance Tax (IHT) was due on his share of a number of properties in Malta.

The man and his siblings had inherited an interest in the properties from their parents. After his death in 2015, HM Revenue and Customs (HMRC) took the view that his interest in the properties formed part of his estate for IHT purposes, and that IHT of £125,867 was due. His sister appealed to the FTT.

The sister, who represented herself in the proceedings, argued that the provisions of the Inheritance Tax Act 1984 were designed to apply to property in the UK and were unsuited to being applied to Maltese property, which was governed by a very different legal code. Rejecting this argument, however, the FTT noted that it was bound to apply the law as enacted, and disagreed with the proposition that the Act did not contemplate situations such as hers.

The sister contended that her brother had been domiciled outside the UK at the date of his death. Under Section 267 of the Act, however, he was deemed to be domiciled in the UK for IHT purposes. The FTT observed that Section 267 was prescriptive and disagreed with the sister's suggestion that it was only one thing to take into account. The FTT was in any case bound by an earlier determination on the question which had not been appealed in time.

The FTT rejected the sister's claim that the man had not been beneficially entitled to the foreign properties, noting expert evidence on Maltese law indicating that he had enjoyed full ownership of his share of the estate.

Ruling on the sister's argument that the man's share of the properties was held on trust, the FTT agreed with HMRC that there was no trust under Maltese law, but concluded that the disposition of the properties would have created a trust under English law. However, it would have given the man absolute beneficial entitlement and did not meet the definition of a settlement in Section 43 of the Act. An argument that his interest in the properties was a future interest was also rejected.

Dismissing the appeal, the FTT found that the man had been domiciled in the UK and the properties formed part of his estate for IHT purposes.