Having considered the proposed expansion of the inheritance tax hallmark, it is important to give some thought to what in practice will need to be reported and how the accelerated payments provisions might apply to IHT schemes that are reported under Dotas and allocated a scheme reference number. This will be especially important to consider in the light of the proposed removal of the grandfathering provisions.
Here is what has been put forward for consideration in the consultation document with what I consider to be the more important parts italicised:
“2.51 Where arrangements fall within the definition of the revised targeted IHT hallmark and are sold or newly implemented after the date the changes come into effect, the Government believes that, as with all other taxes within Dotas, those arrangements should be reported under Dotas.
“2.52 Arrangements that may be prescribed by a changed or newly introduced targeted IHT hallmark could fall into one of three categories. They may be completely new; a variation of something which existed before the changed hallmark came into effect; or a scheme which existed before that time but where firm approaches continue to be made to clients after that time. If the hallmark is appropriately targeted the Government sees no reason for making a distinction between these categories in terms of whether the arrangements must be disclosed where they are made available (or continue to be made available) for new implementation after the changed targeted hallmark comes into effect.
“2.53 This does not mean that all existing arrangements which were made available and where any transaction took place before the change would have to be disclosed even if further transactions take place later. For example, an existing arrangement, such as the execution of a will which is drafted in such a way so as to result in a potential reduction in IHT on or after death and which would otherwise come within the new hallmark would not have to be disclosed if the will had been executed before the date of the change. A subsequent codicil to that will would not change the Dotas position provided it did not substantially alter or revoke the clauses that originally set up the tax saving arrangement. This ensures that application of the new or changed hallmark is wholly prospective by reference to new use of schemes and arrangements described by the hallmark in question.
“2.54 But where, for example, a person undertakes an arrangement which circumvents anti-avoidance provisions after the hallmark is brought into effect that would be disclosable under Dotas under these revised rules.
“2.55 HMRC appreciates that this is a complex area and that promoters, advisers and individuals will want some degree of certainty about whether a particular arrangement or transaction would be disclosable. While it will not be possible to provide a list of which arrangements would be caught or give any form of advanced clearance, HMRC would be willing to work with interested parties to provide greater clarity in guidance as to when disclosure would be required. The section of the Dotas guidance relating to the new employment income hallmark introduced towards the end of 2013 includes a number of examples to demonstrate how that hallmark is intended to operate and that approach could also be applied to IHT. ”
Observation: The expressed willingness to work with interested parties to achieve clarity and certainty is to be embraced and the opportunity maximised to achieve that end. It may be especially important to clarify what HMRC sees as “avoidance” in relation to IHT in the context of this proposed new provision. An agreement “to a narrow” basis for this purpose may help a number of currently used schemes to fall “out of scope”. Maximising the opportunity to influence HMRC to accept this view through consultation will be critically important.
There is also the interaction of the proposed, expanded Dotas provisions and accelerated payments in relation to IHT.
“2.56 There is of course a link between a scheme being disclosed under Dotas and HMRC giving an accelerated payment notice. Such notices can be given where there is an open enquiry or appeal in respect of the tax advantage purported to arise through implementation of a scheme disclosed under Dotas. The way in which accelerated payments interacts with IHT would be different for lifetime charges than it would be for charges following death.
“2.57 For lifetime IHT charges an accelerated payment notice could be given during the scheme user’s lifetime where a chargeable event has occurred in relation to a scheme disclosed under Dotas and an IHT return has been delivered to HMRC bringing the tax within the rules for giving an accelerated payment notice.
“2.58 For IHT chargeable following death no accelerated payment notice could be issued until after the person had died and an IHT account had been delivered, irrespective of when the scheme was made available by the promoter or implemented by the user.
“2.59 It is not the case that all IHT disclosures would automatically trigger an accelerated payment notice but the requirement to disclose would enable HMRC to consider whether it wished to challenge the scheme. ”
Observation: Securing clarity on the potential application (or not) of the proposed new Dotas provisions (with an expanded hallmark and the removal of grandfathering) to the many IHT schemes currently promoted will be essential.
This need for clarity, thankfully, is recognised by HMRC so we look forward to this as the consultation progresses. Representations can be made until 23 October.
Access full CPD, technical updates and business generation ideas through Techlink Professional. Go to www.techlink.co.uk and click the Contact Us link at the top of the screen and then request your free trial from the drop down menu
Tony Wickenden is joint managing director at Techincal Connection