Under the controversial schemes - which the tax authority failed to close down earlier this year in a case which received much publicity - the property is initially transferred to a tax-free trust under the control of one spouse. When that partner dies, the house is transferred to a discretionary trust - also tax free - of which the surviving spouse is one potential beneficiary.

This allows them to continue to live in the property, but effectively excludes it from their estate for the purposes of inheritance tax when they themselves die and it is passed to their children. However, the spouse who initially establishes the trust must live for at least another seven years after it is set up.

If the Inland Revenue wins its latest appeal, legislation banning the creation of such schemes may be introduced in November, or in the next budget, according to predictions. In practical terms, this would render recently established schemes invalid.