Anti-avoidance rules Flashcards
What must be deducted before valuing an estate for IHT purposes?
Debts
What are the anti-avoidance provisions regarding loans?
Some loans are not deductible:
- loans made for assets attrating BPR
- unpaid loans
- loans to acquire, maintain or enhance excluded property
- loans which fund a qualifying foreign currency account
What must be done with the costs of a loan made for assets attracting BPR?
- the costs of the loan must be set against the value of the qualifying asset - this reduces the value of the asset that attracts relief
- if the loan exceeds value of relievable assets, the remainder can be deducted from the estate
Under what condition will unpaid loans only be deducted?
If they are actually paid
This applies to debts owed to D’s family, related trusts or companies, and those made part of tax avoidance arrangements.
What is a Gift with Reservation of Benefit (GROB)?
- The donee does not assume bona fide possession of the property at or before the start of the relevant period
- at any time 7 yrs before the donor’s death, the property is not enjoyed to tne entire exclusion or virtually the entire exclusion of the donor
When does a GROB arise in relation to a trust?
If the settlor is a potential beneficiary
This is referred to as a Settlor Interested Trust.
Can a donor make overnight stays at a property related to a GROB?
Yes, they can return for social visits. This will not count as retaining a benefit
Can a gift be considered a GROB years after it is made?
Yes, if the donor reacquires an interest in the property
What does GROB mean for the donor regarding IHT?
The donor is not treated as having given the property away, and it is treated as part of their estate
What happens if the donor loses benefit before death (for a GROB for IHT purposes)?
It becomes a Potentially Exempt Transfer (PET) on the date of loss
What are the CGT consequences of making a GROB?
Property becomes donee’s property for CGT purposes
This applies even if the donor retains some benefits.
Is there CGT payable if the property passes as a gift at death?
No CGT is payable
What is the Pre-Owned Assets Charge (POAC)?
POAC applies to certain assets and involves tax implications for individuals occupying or having interests in those assets.
Does POAC apply to property within an individual’s estate for IHT purposes?
No, POAC does not apply to property which remains within the individual’s estate for IHT purposes.
What are the conditions for POAC related to land?
- An individual occupies land
- Either the individual has disposed of that land or has contributed to the acquisition of the land without obtaining a beneficial interest in it
What tax implication arises from occupying land under POAC?
The benefit received through occupation is treated as income, and the individual must pay income tax on the equivalent of the market rent.
What are the conditions for POAC related to chattels?
The occupation condition requires that the individual is in possession of or has use of the property.
What are the conditions for POAC related to settlor interested trusts?
The trust property must include intangible property settled by the individual, and the POAC is calculated by reference to the official interest rate.
What transactions are excluded from POAC?
- Spousal exemption
- Family maintenance
- Annual and small gift exemptions
- Disposal’s at arm’s length to unconnected persons
- Occupations seven years after cash gift
What is the General Anti-Abuse Rule (GAAR)?
GAAR requires taxpayers to counteract abusive arrangements by making just and reasonable adjustments. They will also have to pay a penalty.
When does GAAR apply?
- Arrangement which gives rise to a tax advantage
- In relation to a tax to which the GAAR applies (inc. IHT)
- Arrangement satisfies ‘main purpose’ test – main purpose is to obtain tax advantage
- Arrangement is abusive – cannot be reasonably regarded as a reasonable course of action in relation to the relevant tax provisions
What is the ‘main purpose’ test in relation to GAAR?
The main purpose is to obtain a tax advantage.
What does it mean for an arrangement to be abusive under GAAR?
An arrangement is abusive if it cannot be reasonably regarded as a reasonable course of action in relation to the relevant tax provisions.
What must promoters of tax avoidance arrangements do under the Disclosure of Tax Avoidance Scheme?
Promoters of arrangements have to inform HMRC about notifiable proposals.
What are the hallmarks/flags regarding IHT that require notice?
The main purpose of an arrangement is to obtain one of the following specific advantages:
- The avoidance of specified IHT charges on trusts
- The avoidance of charges arising outside GROB rules
- Reduction in value of estate which does not give rise to chargeable transfer.
