HMRC has hit back at suggestions that new proposals designed to tackle tax avoidance schemes which seek to reduce inheritance tax (IHT) through the use of trusts will result in taxpayers having to pay any disputed tax upfront under the accelerated payments regime, before they die.
In a consultation which opened on 31 July, Strengthening the Tax Avoidance Disclosure Regimes , HMRC indicated it intends to broaden the range of schemes involving IHT which are subject to the disclosure of tax avoidance schemes (DOTAS)regime.
HMRC says there is evidence that certain promoters are marketing IHT avoidance schemes because schemes in other tax areas have to be disclosed and claims the loss in tax revenue may be ‘substantial’.
The consultation states: ‘HMRC is aware of a variety of schemes that seek to avoid IHT which would not be detected by the current hallmark because of its focus on a very specific area of IHT avoidance. These include: schemes entered into during a person’s lifetime which are designed to reduce the value of their estate, thereby avoiding IHT on death ; and arrangements which seek to avoid IHT on lifetime transfers or charges other than “entry charges” on relevant property trusts.’
There is a link between a scheme being disclosed under DOTAS and HMRC giving an Accelerated Payment notice in instances where the scheme is being disputed, giving rise to widespread claims that taxpayers who use trusts to reduce or avoid IHT would be liable to pay disputed tax upfront, before they died.
In a statement, HMRC said: ‘The government will not ask be asking taxpayers to make an accelerated payment of inheritance tax – which is due on death – during their lifetime. As part of the ongoing consultation, we are seeking views on tackling inheritance tax avoidance schemes and no final decisions have been taken.’
HMRC says its proposals would only affect a small minority of wealthy individuals actively seeking to avoid inheritance tax, adding: ‘ Accelerated payments will not apply more widely to IHT trust charge changes, unless the trust arrangement is part of a tax avoidance scheme disclosed under DOTAS.’
The consultation on bringing IHT schemes into the DOTAS regime spells this out in detail, stating: ‘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.’
‘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.’
In the consultation, HMRC also says that it is not the case that all inheritance tax disclosures would automatically trigger an Accelerated Payment notice, but notes that the requirement to disclose would enable HMRC to consider whether it wished to challenge the scheme.
Stuart Phillips, of the Private Office, a tax planning firm, said: “The concern is that the Revenue takes a highly aggressive stance, just like with the film schemes for which celebrities have been under scrutiny, and terrifies families who have been engaging in legitimate tax planning that has been used for many years. I’m apprehensive that large-scale action could have unintended consequences.’
The consultation, Strengthening the Tax Avoidance Disclosure Regimes, closes on 23 October 2014. Details are here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/339105/DOTAS-VADR_consultation_2014.pdf
