Wednesday, August 4, 2010

The end of IHT avoidance schemes?

For some reason Inheritance Tax (IHT) avoidance seems to be considered even more of a sport than efforts to avoid other taxes. Actually there are probably 3 reasons for this:
  1. Some people consider the tax to be unfair in principle (unlike for example income tax and capital gains tax);
  2. There is an even longer lead time between IHT planning and the time when anyone can be certain as to how effective (or ineffective) was the effort to reduce the IHT bill; and linked to this point
  3. The fact that IHT avoidance schemes have not, to date, been covered by the Disclosure regime (DOTAS).
This is about to change. HM Treasury and HMRC are aware that tax avoidance schemes are being used to avoid the IHT charge that arises when property is transferred into trust. FA 2010 included legislation to close down two such specific schemes. The concern, however, is that the full extent of such activity in this area is not known. And the time lag already mentioned means it can be many years before schemes become known to HMRC.

Including IHT in the DOTAS regime should help HMRC identify schemes and users at an early stage. I doubt this will reduce the number of adverts in the weekend money pages to 'reduce your IHT bill'. But it may mean that IHT planning has to become more bespoke and specialist. Nevertheless I am sure that the 'sport' will continue for many years to come. Don't you?

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