In light of fierce criticism from tax advisers, accounting and law firms, as well as the Society of Trust and Estate Practitioners and the Chartered Institute of Taxation (CIOT), the government has backed down on its initial plans to include inheritance tax (IHT) within the new framework to change existing DOTAS rules governing the hallmarks describing schemes which must be disclosed
Plans to tighten the rules on disclosure of tax avoidance schemes (DOTAS) hallmarks around inheritance tax will not be included in the new regulations set to come into force later this month.
As a result, the government plans to go ahead with a number of new measures to tighten the rules but has accepted that the IHT proposals are too restrictive.
It will reassess the IHT approach and plans to issue a separate, revised draft IHT hallmark for further consultation in 2016. It will, however, include IHT arrangements within the confidentiality and premium fee hallmarks as originally planned.
Jon Preshaw, chairman of CIOT’s management of taxes sub-committee, said: ‘We had concerns about the administrative consequences of the broad definitions used to identify what should be reported.
‘We welcome the announcement and look forward to the opportunity to work with HMRC to help develop a system which meets their policy objectives at the same time as minimising any unnecessary administrative burden on taxpayers and advisers.’
The hallmark rules on standardised tax products which cover marketed avoidance schemes, as well as loss schemes, and confidentiality and premium fee hallmarks will go ahead as outlined in the original summer 2015 consultation. There will also be a new hallmark describing arrangements including certain financial products.
The new regulations will be laid in Annex A in a statutory instrument entitled The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) (Amendment) Regulations 2016.
The government has agreed that ‘in order for a standardised tax product to be disclosable under the draft it must be reasonable to expect an informed observer (having regard to all relevant circumstances) to conclude that certain conditions are met – in particular that the main purpose of the standardised arrangements is to enable a person to obtain a tax advantage or that the arrangements would be unlikely to be entered into but for the expectation of obtaining a tax advantage’.
In addition to this, the ‘grandfathering’ provisions which exempt arrangements from disclosure if they are substantially the same as anything made available before the hallmark was introduced have been removed from the final legislation.
Following concerns about the scope of the new hallmark arrangements, the government has hinted that arrangements involving the certain tax reliefs are unlikely to fall within the redrafted hallmark unless they are ‘structured in such a way that their main purpose becomes the generation of a tax advantage’.
These include the following:
- Social Investment Tax Relief (SITR);
- Seed Enterprise Investment Schemes (SEIS);
- Quoted Eurobonds; and
- Excluded Indexed Securities.
In the event that any of these schemes are identified as potentially abusive, HMRC has 90 days in which to consider whether to issue a Scheme Reference Number (SRN). Where arrangements involving any of the above reliefs are disclosed, this will enable HMRC to issue SRNs only in appropriate cases.
The proposals were first announced in the March 2015 Budget.
The measures are set to come into force through an SI by the end of February 2016.
The responses to the technical consultation on draft hallmarks for the Disclosure of Tax Avoidance Schemes regimeand final Statutory Instrument are set out here