Company loses tax case on the meaning of life
“This is a case about the meaning of life.”
It is rare for a tax case to begin with a dramatic opening but so begins the introduction to Lexgreen Services Limited vs HMRC. Those hoping for a more existential exploration of the subject matter might soon be disappointed to see that it only extends to a discussion of the definition of life in the context of specific inheritance tax (IHT) provisions.
The case concerns a company, Lexgreen Services Limited (Lexgreen), which had signed a deed establishing a remuneration trust in 2005 and appointing a company with a Jersey address to act as trustee. Lexgreen later contributed more than £6.5m to the trust.
Like many trusts, on its tenth anniversary in 2015, an inheritance tax liability arose based on the value of the assets in the trust at that time. In this case, it was common ground between the parties that the charge was for an amount of £155,466, plus any accrued interest.
The crux of the case and the debate over the meaning of life were driven by a wider question of whether it was Lexgreen that was liable to pay this IHT charge or not.
HMRC determined that Lexgreen was liable for the tax because it established the trust and the trustees were based outside the United Kingdom. A specific provision in the IHT rules outlines that the person who settled funds onto the trust, the settlor, is liable to pay such an IHT charge if the trustees are not UK resident and the “transfer is made during the life of the settlor”.
The question then was whether Lexgreen, a company, was alive for this purpose. The argument was made that this rule could not apply to a company because a company does not have a life in the ordinary sense. The point was made that the legislation was fundamentally concerned with life and death and that parliament would have made its intention clear if it meant to include corporate settlors.
The counterargument from HMRC was that the clear purpose of the provision was to ensure IHT could be collected and excluding companies would create a substantial flaw in the legislation that could be exploited. It could potentially allow individuals to avoid an IHT liability in these circumstances by simply using a company to settle funds on trust.
The ruling comes following Finance Act 2025, which includes an amendment to clarify that, for corporate bodies, references to being alive or dying in the Inheritance Tax Act 1984, are to be read as referring to the body’s existence or it ceasing to exist. However, the tribunal noted that this change was described as a clarification rather than a shift in policy.
The First-tier Tribunal ultimately agreed with HMRC, finding that the word life could reasonably refer to the period a company exists as a legal entity. In doing so and finding that a company is alive, the court has avoided the potential Victor Frankenstein fate of creating a monster of a tax loophole.