HM Revenue & Customs has gone back to the drawing board to rehash its draft legislation on tax avoidance hallmarks following concerns that non-abusive tax planning schemes were included.
After a consultation carried out between July and September last year, many accused the government of casting the net too wide over schemes included in its list of tax avoidance vehicles.
The draft regulations confirm the use of mainstream tax planning tools - such as loan trusts, discounted gift trusts and lifestyle trusts - should not be caught within the Disclosure of Tax Avoidance Schemes.
Published this month, the consultation document reads: “The government does not seek to discourage the legitimate use of reliefs and it is not intended that non-abusive arrangements should be caught.
“The government will consider whether clarification is required in these areas to confirm that non-abusive arrangements do not need to be disclosed.”
Recently, the government has been clamping down on the use of tax avoidance schemes, by issuing accelerated payment notices to individuals demanding they pay disputed tax upfront.
Apart from reconsidering the rules around inheritance tax, Paul Noble, tax director at Pinsent Masons, said the draft legislation makes it clear that HMRC plans to move forward as it intended.
“The area that caused the most controversy was in relation to inheritance tax,” he said. “The government has listened and said it is not going to make the changes on inheritance tax yet, and it is going to consult again and take a fresh look at this.
“This issue has caused the most angst from people in the tax profession and to be fair the government appreciates that it is drafted too widely. I think it is a good move for them to reconsider, because it shows that they have listened to the concerns.
“If it catches things that are outside of that, then it is outside of it’s purpose.”
George Bull, partner at RSM UK Tax and Accounting, said he was not surprised by the document, because non-contentious tax planning tools “are not really what HMRC wants to be disclosed”.
“It is all about getting the hallmark for inheritance tax right via the separate inheritance tax hallmark consultation,” he said, adding further clarification in the Budget is likely.
“It is worth noting that the somewhat cautious comments in the HMRC document do of course leave scope for the government to modify their position in the subsequent consultation with stakeholders.”
Mr Bull concluded by saying mainstream variants of traditional planning opportunities are recognised by HMRC and “seem to be relatively safe from attack”.
However, in the light of the current mood regarding tax avoidance and the likelihood that the chancellor will need to increase the tax take, most people will feel more comfortable when the formal consultation process has run its course and the necessary statutory and regulatory changes have been formally adopted, he added.
Rachael Griffin, financial planning expert at Old Mutual Wealth, said this is a “sensible approach” from the government.
“There is clear difference between these instruments and the avoidance schemes which are under pressure from HMRC’s efforts to strengthen the tax avoidance disclosure regime.
“This clear differentiation creates an opportunity for financial advisers to keep clients informed of the right and wrong ways to manage tax liabilities.”
katherine.denham@ft.com
