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In order of relevance

The penultimate article in a four-part series on the extension of the Dotas regime to IHT discusses relevant property

When it was announced that rules on the disclosure of tax-avoidance schemes were to be extended to inheritance tax-planning arrangements that involved the creation of relevant property (the transfer of property to arrangements founded on discretionary trusts), promoters of relatively long-standing and apparently officially accepted arrangements, such as loan trusts and discounted gift trusts, may have been a little concerned. Accordingly, there would have been some relief when it became clear that grandfathering rules were to be introduced in relation to existing schemes.

Last week I looked at the proposed grandfathering rules and closed with a list of the arrangements HM Revenue & Customs considers covered by the grandfathering provisions and which are outside the disclosure provisions. To be as extensive as possible, the list also includes arrangements that do not fall within the regulations because, for example, property does not become relevant property.

Before considering the list, it is important to bear in mind four important points.

The fact that any particular scheme is exempted from disclosure should not be taken as an indication that HMRC finds the scheme acceptable

First, the fact that any particular scheme is exempted from disclosure should not be taken as an indication that HMRC either finds the scheme acceptable or that it accepts it has the intended tax effect under current law. It merely signifies HMRC is already aware of it or that it does not fall within the regulations.

Second, remember, where schemes are included on the list of grandfathered schemes, it is because HMRC is already aware of them. Where a new scheme is implemented that fails the grandfathering provisions, it requires disclosure.

Third, a scheme may be required to be disclosed even though it is included on the following list if it is part of wider arrangements, not themselves grandfathered, which result in property becoming relevant property and an advantage is obtained in respect of the relevant property entry charge.

Finally, a scheme may also need to be disclosed where it is included on the list but the scheme itself is not the same or substantially the same as those already in existence.

The following list includes the grandfathered arrange-ments most relevant to finan-cial advisers, providers and platforms and uses the refer-ence given in the regulations.

l Arrangements where property does not become relevant property, ie. held on discretionary trust, are not disclosable.

l Arrangements that qualify for relief/exemptions (a single step where there are no other steps in order to gain an advantage) will not require disclosure.

Where the arrangements lead to qualification for: multiple reliefs or exemptions; more than one application of the same relief or exemption; a single relief or exemption where there are further steps in order to gain an advantage; then disclosure will not be required where the arrangements can be shown to be covered by the grandfathering rule.

When considering whether arrangements that qualify for a relief or exemption require disclosure, it is important to remember the arrangements must result in property becoming relevant property for the regulations to apply.

l The purchase of business assets or agricultural assets (whether or not they are insurance backed) with a view to holding them for two years prior to transferring them into a trust (and therefore qualifying for relief under s.105 IHT Act 1984) is not disclosable provided there are no further steps in the arran-gements as the grandfathering rules will apply.

l The establishment of pilot settlements with a nominal sum (regardless of the number of settlements and whether they are created on successive days) would not require disclosure where there is no advantage obtained in relation to the relevant property entry charge. It should be noted that an advantage in respect of the 10-year anniversary and exit charges is not disclosable under the regulations. l Discounted gift trusts/ schemes where the residual trust is a bare trust would not require disclosure as there is no property becoming relevant property.

Where, in relation to a discounted gift trust/scheme, property becomes relevant property, disclosure will not be required where the grand-fathering provisions apply.

l Excluded property trusts; disabled trusts; employee benefit trusts that satisfy s.86 and a qualifying interest in possession trust
The list so far is reassuring. Space constraints mean I need to complete the list next week.

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