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Grand designs

The second in a four-part series on the extension of the Dotas regime to IHT looks at grandfathering provisions


Last week I looked at the basic provisions of the new disclosure rules in relation to inheritance tax-planning arrangements involving the creation of relevant property trusts as set out in the inheritance tax avoidance schemes (prescribed descriptions of arrangements) regulations 2011 (SI 2011/170).

I also referred to the fact these new provisions are primarily aimed at providing information on targeted schemes and arrangements for HM Revenue & Customs. Getting a scheme reference number does not necessarily mean there will be an attack on the scheme but neither does it represent clearance.

However, if the arrangement in question satisfies the three tests I referred to in my last column, then it will be important for the scheme promoter to disclose details of the scheme to HMRC. The good news for the many promoters of arrangements that have a history is that there are grandfathering rules.

As I mentioned before, one of the aims of the extension of the disclosure rules to IHT is to restrict disclosure to those schemes that are new or innovative. This is achieved by exempting from disclosure those schemes that are the same or substantially the same as arrangements made available before April 6, 2011.
This is known as grandfathering.

HMRC has provided some guidance on what is meant by substantially the same as follows: “A promoter is required to disclose the same scheme only once. Minor changes, for example, to suit the requirements of different clients, need not be separately disclosed providing the revised proposal remains substantially the same.

“What constitutes a change in a scheme or arrangement so that it is no longer substan-tially the same is a matter which will need to be considered on each occasion.

“In our view, a scheme is no longer substantially the same if the effect of any change would be to make any previous disclosure misleading in relation to the second (or subsequent) client.

“In general, provided the tax analysis is substantially the same, we will regard schemes as ’substantially the same’ where the only change is a different client including a different company in the same group.

“We will not regard schemes as substantially the same where there are changes to deal with changes in the law or accounting treatment, changes in the tax attributes eg schemes creating income losses instead of capital losses or other legal and commercial issues.

“However, special care must be taken where an existing tax product is used as part of an otherwise bespoke scheme. This has been described to us as ’the use of existing toolkit’.

“Where a piece of ’existing toolkit’ is used as part of a separate scheme for the same or different client then it may be that the resulting scheme is so different from the earlier planning idea that the disclosure position needs to be considered afresh. In some situations this might involve the client being given two or more numbers, for example where the scheme involves a combination of ideas that were themselves disclosed and allocated a number.”

Subject to what is said above, the regulations exempt from disclosure arrangements that are the same or have substantially the same description as arrangements:

  • that were first made available for implementation before April 6;
  • in relation to which the date of any transaction forming part of the arrangements falls before April 6; or
  • in relation to which a promoter first made a firm approach to another person before April 6.

It is a matter of fact whether an arrangement is grandfathered. Evidence of grandfathering would include:

  • the existence and substance of the arrangement being clearly described in tax manuals or publications;
  • the production of an affidavit where evidence that the grandfathering rule applies is subject to legal professional privilege; or
  • a practitioner’s own record as to when they made, or learnt that competitors were making, an arrangement available.

There could be a number of disputes as to whether a scheme/arrangement is grandfathered. To clarify this area, HMRC has made available a list of schemes it regards as being grandfathered. This list is purely illustrative and should not be regarded as exhaustive. HMRC says if there is any doubt as to whether a scheme ought to be disclosed then a disclosure should be made. I will consider this list in more detail next week.

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