IHT tools to escape HMRC tax disclosure rules

By Sam Shaw

Added 10th February 2016

Including popular inheritance tax planning vehicles in the UK's tax avoidance disclosure regime would be a step too far, HM Revenue & Customs has agreed.

IHT tools to escape HMRC tax disclosure rules

In response to the technical consultation over the draft ‘hallmarks’ for the disclosure of tax avoidance schemes (DOTAS) regime, HMRC accepted that redrafting the legislation to include ordinary IHT planning products would risk catching products that were not abusive.

The paper said: “The government recognises these concerns. It remains committed to updating the IHT hallmark, but in a way that is tightly targeted and does not catch ordinary, non-abusive, tax planning.”

Last year’s budget saw the government aim to keep its DOTAS regime in line with the current state of tax evasion, including inviting consultation from the industry.

In July 2015, HMRC published draft changes to the legislation that potentially brought a number of trusts commonly used for inheritance tax planning under the rules.

Good news

Rachael Griffin, financial planning expert at Old Mutual Wealth (OMW) said: “The good news for the financial services industry is it mentions specific mainstream products as being okay, such as loan trust and discounted gift trust.”

"“The draft regulations confirm the use of legitimate, mainstream tax planning tools."

The DOTAS regime calls on promoters and users of schemes that contain defined ‘hallmarks’ of avoidance to allow for advance notice to HMRC.

According to OMW, there have been 93 changes to tax law as a result of information from DOTAS since its introduction in 2004.

Griffin said: “The draft regulations confirm the use of legitimate, mainstream tax planning tools such as loan trusts and discounted gift trusts should not be caught within DOTAS.

“This is a sensible approach from the government as there is clear difference between these instruments and the avoidance schemes which are under pressure from HMRC's efforts to strengthen the tax avoidance disclosure regime. 

“This clear differentiation creates an opportunity for advisers to keep clients informed of the right and wrong ways to manage tax liabilities.”


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