Negotiable IHT - What price a promise?

-There was a completed lifetime gift of the property - a PET; or the property was the subject of a a gift in contemplation of death (donatio mortis causa). If either argument was successful, no valuation discount could apply.

Adviser's approach

These arguments are best stumbled upon after death. It is very likely that, if an adviser tried to set up these trust arguments during a taxpayer's lifetime, they would be caught by the IHT anti avoidance rules. Additionally, the HMRC appears very conscious of the validity of the arguments and could seek a test case in a matter that the HMRC feels is likely to be resolved in its favour.

In practice an adviser can most help a client by just recognising that these trust arguments may apply after a death; probably where the client is a beneficiary with IHT to be paid from the inheritance. The adviser needs to consider:

1 Could trust arguments arise?

2 Does the client need an analysis of the facts by a specialist lawyer?

3 If such an argument does arise those facts will need to be carefully presented to the HMRC and specialist valuation advice may have to be taken.

4 Always keep in mind the HMRC's litigation and settlements strategy, particularly its objectives to:

a) Focus on issues that "will best serve HMRC's goal of tax gap reduction".

b) Choose cases for their wider impact as well as for their own value.

c) "Where we have a strong case we should seek full value from settlement, or take the matter to litigation".

It can hardly ever be in a client's interests to become involved in litigation with the HMRC so give and take in negotiations may be essential. Occasionally a client may have legal expense insurance or find a solicitor who will operate on a no win, no fee agreement, but even this will not remove the stress and worry of litigious proceedings. Some clients like a fight, most do not. Specialist advice in this little known area is vital.