IHT Avoidance Flashcards
What is tax avoidance?
Bending the rules of the tax system to gain a tax advantage that Parliament never intended
What are the types of behaviour regarding tax?
1) Tax planning (lawful)
2) Aggressive tax avoidance (legal loopholes against legislative intention)
3) Tax evasion (concealing assets or income)
What are some anti-avoidance rules for IHT?
1) Restriction on deduction of loans
2) Gifts with reservation of benefit
3) Pre-owned assets charge
4) General anti-abuse rule
5) Disclosure of tax avoidance schemes
What is general rule on deduction of loans?
Debts and loans deductible when calculating estate value
What do restrictions apply to in deduction of loans?
1) Loans to acquire/maintain assets qualifying for BPR, APR, or woodlands relief
2) Loans not repaid from the estate
3) Unpaid loans (can only deduct if actually repaid)
Can loans to family/trust/companies be deductible?
Yes, if actually repaid
What is restriction on gifts with reservation of benefit?
Stops people giving away assets but retaining benefit
What is relevant period for gifts with reservation of benefit?
7 years before death
What are triggers for restriction on gifts with reservation of benefit?
1) Donee does not get bona fide possession before/during relevant period
2) Property not enjoyed to exclusion of donor
What is pre-owned assets charge?
Annual income tax charge when someone gives away property but continues to benefit
Can you apply for both pre-owned assets charge and gifts with reservation of benefit?
No
What does pre-owned assets charge apply to?
Land, chattels, settlor-interested trusts
What is the general anti-abuse rule?
Broad, discretionary rule to counter abusive tax avoidance
What are conditions needed for general anti-abuse rule to apply?
1) Arrangement gives tax advantage
2) Applies to relevant tax
3) Satisfies main purpose test
4) Fails double reasonableness test
What is consequence of failing general anti-abuse rule?
“Just and reasonable” counteraction, such as 60% penalty of counteracted tax
What is disclosure of tax avoidance schemes?
Requires legal advisers to report certain schemes to HMRC
What are conditions of disclosure of tax avoidance schemes?
1) Arrangement offers IHT advantage
2) Includes contrived or abnormal steps
3) Main benefit = tax advantage
4) Must match one of the prescribed hallmarks
What is an IHT hallmark example?
Reversionary leases to children, employee benefit trusts to benefit settlor’s children after death, BRR asset gifted with option to repurchase
What is not notifiable in disclosure schemes?
Normal outright gifts, statutory exemptions, regular will and deeds of variation
