‘Genuine tax planning will remain legitimate despite avoidance crackdown’ says Eamonn Daly of Lodders Solicitors in Cheltenham

Genuine tax planning will remain legitimate despite a new anti-avoidance crackdown relating to inheritance tax, says a tax partner at Lodders Solicitors in Cheltenham.

Eamonn Daly said HM Revenue & Customs was only after those who constantly tried to push the boundaries, coming up with ruse after ruse.

He explained: “HMRC is proposing that inheritance tax be brought more widely into the disclosure of tax avoidance rules but the new proposals are targeting very artificial schemes. The message is that traditional tax planning still works and professional advice is required.”

Consultation on the shake-up has just closed.

The proposals have proved particularly controversial as some pundits have claimed that people could be taxed in life on matters which only relate to death. That is because, in some cases, they would be subject to the new law on “accelerated payments”, which requires disputed tax to be paid up front.

HMRC has responded that it wants to catch only those dodgy inheritance tax schemes entered into during a person’s lifetime, such as those that are designed to purely artificially reduce the value of their estate. It did not seek to inadvertently impact on reliefs and exemptions that “are used legitimately in many arrangements by the vast majority of people”.

Mr Daly, a chartered tax adviser who also heads up the trusts team within Lodders’ private client department, said: “There have been some lurid headlines but reputable tax advisers will always play it by the book.

“It is those on the margins and others who bend the rules outrageously that HMRC is after.

“Most people have no need to be scared. The tax planning that we, and many others in the profession, are involved in will still work.

“The tax avoidance crackdown is aimed at previously undetected inheritance tax planning schemes, where HMRC suspects substantial sums are at risk. It is determined to close the loopholes. The changes are designed to ensure that HMRC has a much greater flow of information about the use of avoidance arrangements in IHT.”

The intention would be to challenge such tax avoidance schemes more quickly – over the past decade nearly 3,500 have been generated.

The most important reliefs, however, will remain unaffected – for example, business property relief and agricultural property relief which are designed to ensure that businesses do not have to be broken up and sold to pay IHT and to encourage entrepreneurs to invest in businesses and take the associated risks.

Also, investing in AIM shares with the intention of qualifying for business property relief having owned them for two years would not be disclosable.

“These are vitally important to industrialists, farmers and innovators who will be very relieved that they are unaffected,” said Mr Daly.

“There is always a fear that proposed anti-avoidance legislation will end up being drafted so widely that it will catch innocent transactions but HMRC are at pains here to spell out that traditional tax planning will be unaffected.

“This seems genuine – they do not want to be deluged with tens of thousands of reports of perfectly legitimate arrangements.”