Inheritance Tax  

HMRC reveals demands on IHT avoidance advisers

HMRC reveals demands on IHT avoidance advisers

HM Revenue and Customs has published guidance on the disclosure of tax avoidance scheme in regards to inheritance tax.

The 12-page document, titled 'Disclosure Of Tax Avoidance Schemes (DOTAS): Inheritance Tax', provides examples of arrangements that people need to disclose.

The report states that a proposal or arrangement must be disclosed under DOTAS as an IHT scheme if there are arrangements which are expected to provide an IHT advantage, and that this advantage is expected to be one of the main benefits of the scheme.

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It must also be notified if the arrangements fall within one of three 'hallmarks', which apply for IHT.

Within these hallmarks conditions that would trigger the need for notification to HMRC include the avoidance or reduction of a relevant property entry charge or the avoidance or reduction of a charge to inheritance tax under section 64, 65, 72 and 94 of IHTA 1984.

Likewise the avoidance or reduction of a charge to inheritance tax arising from the application of section 102, 102ZA, 102A, or 102B of the Finance Act 1986 in circumstances where there is also no charge to income tax under Schedule 15 to the Finance Act 2004 (charge to income tax on benefits received by former owner of property).

Another condition is a reduction in the value of the person’s estate without giving rise to a chargeable transfer or potentially exempt transfer. 

More broadly, HMRC will want to know if "the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained".

The new DOTAS rules are a pivotal part of HMRC’s armoury in countering what it regards as aggressive tax avoidance.

It  requires promoters of a scheme or product bearing one or more ‘hallmarks’ to register it with HMRC, who then may issue it with a scheme reference number.

Any taxpayer who uses the scheme also needs to register with HMRC.

Sean Christian, managing director and executive director for international businesses at Canada Life International, welcomed the document.

He said: “Using the guidance, advisers can be absolutely clear and confident that the solutions they recommend will not fall foul of the new rules. In our judgement, HMRC has made the right call about what’s acceptable.

“For us this is welcome news."

Since 2015, HMRC has been consulting on a proposed expansion of the DOTAS hallmarks in relation to IHT, which would alter arrangements brought into DOTAS including those designed to mitigate IHT.

Mel Kenny, chartered financial planner at London-based Radcliffe & Newlands, said: “It’s good to get clarity on what you can and cannot do.

"Some have paid through the nose where retrospective action has been taken on loosely based rules of the past.”

Log on to read the report.