Corporate settlors and IHT – Introduction
Do companies have a “life” for inheritance tax purposes?
Deep, deep philosophical questions?
Just a day’s work for the tax tribunal!
The Upper Tribunal has confirmed that they do, closing an escape hatch that corporate settlors have relied upon to avoid secondary IHT liability on offshore trusts. In Lexgreen Services Limited v HMRC [2026] UKUT 00289 (TCC), decided on 31 July 2026, Judges Thomas Scott and Vimal Tilakapala dismissed the taxpayer’s appeal and upheld HMRC’s assessment for IHT arising on a non-resident trust’s ten-year anniversary charge.
The case turned on what it meant for a transfer to be made “during the life of the settlor” when the settlor is a company?
Lexgreen argued that companies, being artificial legal persons, do not have “life” in the relevant sense, and therefore the secondary liability provisions in section 201 of the Inheritance Tax Act 1984 could not apply.
The Tribunal disagreed… and the consequences for corporate settlor arrangements with non-resident trustees are significant.
The Statutory Framework
When a discretionary trust holds relevant property, it is subject to periodic IHT charges at each ten-year anniversary (the “principal charge”) and proportionate exit charges when property leaves the trust.
The primary liability for these charges falls on the trustees.
But where the trustees are not UK resident, section 201(1)(d) IHTA 1984 provides that, in certain circumstances, the settlor is secondarily liable.
The key provision is section 201(1)(d), which makes the settlor liable for IHT on a chargeable transfer “if the tax remains unpaid after it ought to have been paid and… the transfer is made during the life of the settlor.”
The question is a stark one. If a company settles property into a trust, and the trustees are non-UK resident, can the company be liable as settlor for the ten-year charge?
That depends on whether a ten-year charge is a transfer “made during the life of the settlor”… which in turn depends on whether a company has a “life”.
The Facts
Lexgreen Services Limited was a UK company that had settled property into a trust with non-resident trustees.
The trust reached its ten-year anniversary, triggering a principal charge to IHT.
The trustees were not UK resident and the tax remained unpaid. HMRC assessed Lexgreen as secondarily liable under section 201(1)(d).
Lexgreen appealed, arguing that companies do not have a “life” in the sense contemplated by section 201(1)(d).
A company exists, it submitted, but it does not live and cannot die in the biological sense the statute implies. The provision, on this reading, applies only to individual settlors… not corporate ones.
The First-tier Tribunal rejected this argument in Lexgreen Services Ltd v HMRC [2025] UKFTT 1019 (TC), finding that a company does have a “life” for IHT purposes. Lexgreen appealed to the Upper Tribunal.
The Upper Tribunal’s Decision
The Upper Tribunal dismissed the appeal and upheld the FTT’s decision. The Tribunal’s reasoning proceeded on several grounds:
- The term “life” in section 201(1)(d) is not a biological term requiring flesh and blood. It refers to the period of a person’s legal existence. A company comes into existence on incorporation, continues to exist throughout its registered life, and ceases to exist on dissolution or striking off. That period of existence is the company’s “life” for statutory purposes.
- The legislation contemplates that companies can be settlors. There is no carve-out from the definition of “settlor” for corporate persons, and companies routinely settle property into trusts for commercial reasons. It would be anomalous if section 201 applied to individual settlors but not to corporate ones merely because of semantic arguments about vitalism.
- The purpose of section 201 is to provide HMRC with recourse where trustees are beyond UK jurisdiction. That purpose applies equally whether the settlor is an individual or a company. Reading “life” to exclude companies would create an arbitrary gap in the charging provisions.
- Consistent with established principles of statutory interpretation, general words in tax statutes are given their ordinary legal meaning unless context requires otherwise. In legal parlance, companies are frequently described as having a “life”—a company is “brought into existence,” has a “corporate life,” and may be “put to death” through winding up. The statute uses ordinary language; the ordinary meaning applies.
The Scheme Behind the Litigation
According to commentary on the case, the Lexgreen structure originated as a marketed tax planning arrangement. The design apparently sought to exploit the “companies don’t have a life” argument to insulate corporate settlors from secondary IHT liability where trusts held offshore with non-resident trustees.
On paper, the logic was superficially attractive – settle property via a company, appoint non-resident trustees, and when the ten-year charge arises, argue that the company cannot be liable because it lacks “life”.
The scheme promoter apparently saw this as a gap worth exploiting.
The Upper Tribunal has now confirmed that the gap does not exist. Companies that settle property into trusts with non-resident trustees remain secondarily liable for IHT charges arising during the company’s existence.
For anyone who implemented such an arrangement, the bill may well be in the post.
Practical Implications
The decision has immediate consequences for existing structures and future planning:
- Existing corporate settlor arrangements: Companies that have settled property into non-resident trusts should review their exposure. If a ten-year anniversary has passed or is approaching, and the trustees have not paid the IHT, the corporate settlor is secondarily liable. HMRC has demonstrated willingness to pursue these assessments.
- Liquidation is not a defence: The case law suggests that HMRC can pursue directors and shareholders where a company enters liquidation owing IHT. Joint and several liability notices have been issued in other scheme contexts. Corporate dissolution does not necessarily extinguish personal exposure for those behind the company.
- Future planning: Advisers should ensure clients understand that using a corporate settlor does not avoid IHT secondary liability. If non-resident trustees are appointed, the settlor, whether individual or corporate, remains on the hook if the trustees do not pay. The only way to avoid this is to ensure the trustees are UK resident and pay the tax, or to structure arrangements so that they do not attract relevant property charges at all.
- Scheme users: Anyone who implemented a structure marketed on the “companies don’t have a life” thesis should seek urgent advice. The scheme has failed, and the liability will need to be settled. Delay only increases interest charges and potential penalties if HMRC views the arrangement as involving careless or deliberate conduct.
Wider Context: The Tribunal’s Philosophical Patience
It is difficult not to notice a certain dry humour in the Tribunal’s task.
The case required senior judges to address, with complete seriousness, whether a company can be said to “live”.
The judgment is meticulous in its analysis, but one suspects the panel found the underlying argument fanciful.
Companies have legal personality. They exist… they act… they can own property and incur liabilities. To suggest they lack “life” in a statutory context that clearly contemplates their participation is an argument that tests the patience of any tribunal.
That said, the case illustrates how tax avoidance schemes often depend on exploiting apparent ambiguities in language.
The promoter here identified “life” as a potentially biological term and built an entire structure around it.
The result is perhaps predictable. HMRC challenged, the tribunals rejected the argument, and the users of the scheme are now liable for the tax they sought to avoid, plus interest, plus potential penalties, plus the cost of two rounds of litigation.
Takeaway
The Upper Tribunal has confirmed what ought to have been obvious: companies have a “life” for IHT purposes, and corporate settlors can be secondarily liable under section 201 IHTA 1984.
The “meaning of life” argument has failed, definitively, at the Upper Tribunal level. Subject to any appeal, those who promoted the scheme, and those who used it, now face the consequences.