Taxpayers' application for  protective costs order against HMRC refused

20 May 2024. Published by Alexis Armitage, Senior Associate

In (1) The Executors of the Estate of Peter John Linington (2) The Trustees of The Kent Trust V HMRC [2024] UKUT 00070 (TCC), the Upper Tribunal (UT) dismissed the taxpayers' application for a protective costs order against HMRC under which they would not have been liable for HMRC’s costs of defending their appeals if they were dismissed.


Mr Linington entered into inheritance tax (IHT) planning arrangements in 2010, which involved an Isle of Man trust, the Marshall Trust, and the granting of an option to Mr Linington to become the income beneficiary of that trust.

Prior to the exercise of the option, Mr Linington assigned his reversionary interest in the Marshall Trust to the trustees of another trust, the Kent Trust.

Following Mr Linington’s death, HMRC issued two notices of determination on the basis that the arrangements constituted a transfer of value within section 3(1), Inheritance Act 1984, and that following Mr Linington’s death, this gave rise to a charge to IHT.

Mr Linington’s executors and the trustees of the Kent Trust (the Appellants) appealed to the First-tier Tribunal (FTT) arguing that:

  • the reversionary interest in the Marshall Trust was excluded from the charge to IHT on the basis that Mr Linington had acquired the interest for no consideration and the Marshall Trust was property situated outside the UK which had been settled by a settlor domiciled outside the UK at the time of settlement; and
  • there was no transfer of value when the reversionary interest was assigned to the trustees of the Kent Trust as the effect of the arrangements was that there was no diminution in the value of Mr Linington’s estate.

The appeals were dismissed.

The Appellants applied to the FTT for permission to appeal. The FTT granted permission to appeal on one ground but refused permission to appeal on various other grounds. The Appellants sought permission from the UT to appeal on those other grounds and permission was granted on a second ground, but refused on the other grounds.

Prior to continuing their appeals to the UT, the Appellants applied to the UT for a protective costs order (PCO), under which they would not be liable for HMRC’s costs of defending the appeals if the Appellants’ appeals were ultimately dismissed. The Appellants' were represented in the application for a PCO by Mrs Bridget Pearce, one of the executors and a trustee of the Kent Trust.

UT decision

The application was dismissed.

When considering whether to grant the Appellants' application the starting point for the UT was consideration of the questions set out in R (Corner House Research) v Secretary of State for Trade & Industry [2005] EWCA Civ 192, [2005] 1 WLR 2600, namely:

  • are the issues raised of general public importance?


  • does the public interest require that those issues  be resolved?


  • does the applicant have a private interest in the outcome of the case?


  • having regard to the financial resources of the applicant and the respondent and to the amount of costs that are likely to be involved, is it fair and just to make a PCO?


  • if an order for a PCO is not made, is it probable that the applicant will discontinue the proceedings and be acting reasonably in doing so?

The UT considered that the most significant factors in the instant case were the absence of any issues of general public importance, the significant personal interest of Mrs Pearce, and the context in which the issues arose. The UT also bore in mind that this was not a case where HMRC was seeking to appeal a decision of the FTT in order to establish a point of principle, thereby exposing the taxpayer to a liability for costs. Ultimately, the UT agreed with HMRC that the general taxpaying public should not be exposed to irrecoverable costs in defending the Appellants’ appeals if those appeals were unsuccessful. The UT commented that there are many cases where taxpayers decide not to pursue an appeal because of the potential liability for HMRC's costs if they are ultimately unsuccessful. The UT put it succinctly when it commented that:

"… the general body of taxpayers would baulk at the suggestion that the Appellants should be immune from a costs order where they are seeking to challenge a decision that the tax planning arrangements entered into by PL to avoid IHT were ineffective".


PCOs are not readily made by the tax tribunals and this decision provides useful guidance on how the UT and appellate courts are likely to approach and determine an application by a taxpayer for a PCO.

The decision can be viewed here.

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