HMRC spares ‘non-aggressive’ trusts from IHT avoidance scheme crackdown

HM Revenue & Customs has proposed strengthening the ‘hallmarks’ it uses to identify inheritance tax planning arrangements but has excluded certain types of trusts used alongside life assurance policies.

Under draft legislation released last week, a scheme will fall under the disclosure of tax avoidance schemes regime if its main purpose is to obtain an IHT advantage and if it is ‘contrived, abnormal, or unlikely to have been made if there were no tax advantage’.
However, the legislation specifically exempts Discounted Gift Trusts used with a life assurance policy as well as Loan Trusts, as they are accepted by HMRC as non-aggressive planning opportunities.

On the draft legislation, HMRC said: “Following consultation in 2014, Finance Act 2015 strengthened aspects of the DOTAS regime. Further changes to the ‘hallmarks’, which describe the detail of arrangements that fall to be disclosed, are contained in regulations.”

Scope

Inheritance tax planning was first brought under the DOTAS scope in 2011 but the proposals will strengthen its focus.

Inclusion within the DOTAS regime is likely to mean that users are subjected to potentially retrospective accelerated payment demands, requiring them to immediately pay disputed tax.

Neil Chadwick, technical manager at RL360° said “HMRC are always working very hard to reduce tax leakage by closing down aggressive and contrived schemes for which there is no other purpose but to achieve a tax advantage.

“It’s great to see that both the Discounted Gift Trust and Loan Trust have been recognised as legitimate non-aggressive planning opportunities.

“DOTAS initially applied only to income tax and CGT but over the years this has been extended to Inheritance Tax.

“These proposals will stop designers of inheritance tax avoidance schemes from getting out of the blocks, as they know it will never be able to function, as it will have a hallmark of an avoidance scheme.

“This is good for us, as it leads people back to the tried-and-tested stuff that we offer, which is defined as non-aggressive. These services are offered by offshore bond providers and more advisers will now have no choice but to use them.”