Disclosure of Inheritance Tax avoidance. Consultation document Publication date: 27 July 2010 Closing date for comments: 20 October 2010

Transcription

1 Disclosure of Inheritance Tax avoidance Consultation document Publication date: 27 July 2010 Closing date for comments: 20 October 2010

2 Subject of this consultation: Scope of this consultation: Extending the Disclosure of Tax Avoidance Schemes (DOTAS) regime to include Inheritance Tax (IHT) as it applies to the transfer of property into trust. This consultation invites comments on how the DOTAS regime may be extended to IHT, as it applies to trusts, and provides draft regulations. It specifically invites comments on: The description of the schemes that would have to be notified; and The administrative arrangements for providing that notification. Impact Assessment: An Impact Assessment can be found at Annexe B. Who should read this: Promoters of tax avoidance schemes, including accountancy and law firms, banks and other financial institutions, their related representative bodies and clients. Duration: 27 July 2010 to 20 October 2010 Enquiries: To Chris Bara, HMRC IHT Policy, Room G45-48, 100 Parliament Street, London SW1A 2BQ. Telephone: How to respond: Additional ways to become involved: After the consultation: Getting to this stage: Please respond to Chris Bara as above. HMRC will arrange discussions with interested parties if there is sufficient demand. Subject to Ministerial approval, a summary of responses will be published on the HMRC website and the draft regulations will be amended as appropriate to take account of those responses. It is expected that the regulations would come into effect in April At the 2009 Pre-Budget Report, draft legislation was published, closing down two IHT avoidance schemes involving the use of trusts. At the same time it was announced that HMRC would look into wider solutions to the problem of avoidance of IHT charges associated with trusts. Following some informal discussions with interested parties, at the June 2010 Budget the Government announced that it would consult on bringing IHT on trusts within the DOTAS regime. Previous engagement: HMRC has had two informal meetings with representative bodies and other interested parties in January 2010, which discussed how avoidance of IHT charges associated with trusts could be tackled. This included applying the DOTAS regime to this area of IHT. 2

3 Contents 1 Introduction 4 2 The consultation process 5 3 Background 6 4 The problem being addressed 7 5 Summary of Consultation Questions 10 Annexe A The Code of Practice on Consultation 11 Annexe B Impact Assessment 12 Annexe C Relevant (current) Government Legislation 20 Annexe D Technical Note including Draft Regulations 24 On request this document can be produced in alternative languages and formats including large print, audio formats and Braille 3

4 1. Introduction 1.1 This is a technical consultation on applying the Disclosure of Tax Avoidance Schemes (DOTAS) regime to Inheritance Tax (IHT), as it relates to trusts. It includes draft legislation and invites comments on: The suitability of the proposed description to identify these types of scheme; and The practicality of the proposed notification requirements for those who develop or use the schemes. 1.2 The Government is planning, subject to the outcome of the consultation, to introduce regulations later in The Government is keen for interested parties to comment on its plans and to have the opportunity to consider the detail of the proposed legislation. It is therefore publishing this draft legislation for comment. The discussion document Tax policy making: a new approach published at the June 2010 Budget sets out three stages for policy development: stage 1 set out objectives and identify options; stage 2 determine the best option and develop a framework for implementation, including detailed policy design; and stage 3 draft legislation to effect the proposed change. This consultation is taking place during stage 3 of the process. Chris Bara in HMRC is leading this consultation and can be contacted using the details in Section An Impact Assessment is included at Annexe B. HM Revenue and Customs would welcome any comments on the Impact Assessment and any estimates of costs or savings that may accrue as a result of these proposals. 4

5 2. The Consultation Process How to respond 2.1 A summary of the questions in this consultation is included in section You should send in your comments before 20 October 2010 by to chris.bara@hmrc.gsi.gov.uk or by post to: Chris Bara HMRC IHT Policy Room G45 G Parliament Street London SW1A 2BQ. Telephone enquiries: Paper copies of this document or copies in alternative languages and formats may be obtained free of charge from the above address. This document can also be accessed from the HMRC Internet site at All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations. 2.4 When responding please say if you are a business, individual or representative body. In the case of representative bodies please provide information on the number and nature of people you represent. Confidentiality 2.5 Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the Environmental Information Regulations If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentially can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Revenue and Customs (HMRC). 2.7 HMRC will process your personal data in accordance with the DPA and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. The Consultation Code of Practice 2.8 This consultation is being conducted in accordance with the Code of Practice on Consultation. A copy of the Code of Practice criteria and a contact for any comments on the consultation process can be found in Annexe A. 5

6 3. Background 3.1 The DOTAS regime was introduced in Part 7 of the Finance Act 2004 (FA 2004) and associated regulations. It came into effect on 1 August 2004 and applied initially to income tax, corporation tax and capital gains tax ( the main regime ). The regime has subsequently been revised and extended. In particular, it was extended to Stamp Duty Land Tax in 2005 and National Insurance Contributions in There is a summary of the main provisions in Annexe C. Extending the DOTAS regime to Inheritance Tax (IHT) would be a further progression. 3.2 The primary legislation in FA 2004 includes IHT but the regime does not currently apply to it because regulations are required to implement the regime and none have yet been made in respect of IHT. 3.3 In the 2009 Pre-Budget Report draft legislation was published to close two IHT avoidance schemes involving the use of trusts. At the same time, the previous Government announced that HMRC would look into wider solutions to the problem of avoidance of IHT charges associated with trusts. Some informal discussions were held with representative bodies and other interested parties in January The possibility of extending the DOTAS regime to a targeted area of IHT was discussed, amongst other options. The principle was generally accepted though there were concerns about how this might be implemented. 3.4 Consequently the Government announced in the June 2010 Budget that it would consult on bringing IHT on trusts within the DOTAS regime. This consultation represents stage 3 (draft legislation to effect the proposed change) of the discussion document Tax policy making: a new approach published at the June 2010 Budget. 3.5 The objectives of the DOTAS regime are to: provide HMRC with early information about the detail of tax avoidance schemes, allowing those schemes to be risk-assessed and, where appropriate, to inform antiavoidance legislation; and identify users of those tax avoidance schemes. 3.6 The regime seeks information about users of schemes for two main purposes: knowing the extent of use of a scheme informs HMRC s risk analysis and prioritisation of operational challenge, and Ministers decisions about which schemes to prioritise for legislation; identifying specific users in sufficient time allows HMRC to prioritise and co-ordinate enquiries into users. 3.7 In brief, the DOTAS regime requires specified persons to provide information to HMRC ( disclose ) about tax schemes falling within certain descriptions. The person required to make the disclosure is normally the promoter of the scheme (usually an accountancy firm, law firm, bank or other financial institution) but there are some circumstances where the scheme user must make the disclosure themselves. 3.8 The DOTAS regime uses a scheme reference number (SRN) system to identify the users of schemes disclosed by a promoter. HMRC issues the SRN to promoters who pass it on to the users. Scheme users then have to provide the SRN to HMRC when they first implement the scheme, usually in their annual tax return for the year in question. 3.9 Finance Act 2010 includes a provision requiring promoters to provide HMRC with periodic lists of SRNs issued to clients who have implemented a scheme. This is subject to an Appointed Day Order and will probably come into force later in

7 4. The problem being addressed 4.1 HM Treasury and HMRC are aware that tax avoidance schemes are being used to avoid the Inheritance Tax (IHT) charge that arises when property is transferred into trust. Finance Act 2010 included legislation to close down two such specific schemes. The concern is however that the full extent of such activity in this area is not known. HMRC has evidence, supported by information from external parties, that there is continuing interest in developing schemes. 4.2 The information gap is a particular issue for IHT: There is often a considerable time lag between entering into arrangements and the IHT benefit crystallising, and there may also be no reporting requirement; Without receiving the relevant information in a structured and timely way it is difficult to legislate against schemes in a coherent and structured way; Not being able to identify users makes it difficult to assess how widely schemes are being used. As a result there is a risk that any anti-avoidance efforts are not targeted at the main risks. 4.3 Including IHT in the DOTAS regime should help significantly by identifying schemes and users at an early stage. Although the concept is straightforward, getting the scope right is crucial in order to get the appropriate information while ensuring the regime is workable and effectively targets avoidance schemes. We would therefore welcome input from interested parties to help achieve the right balance. 4.4 The Government confirmed in the June 2010 Budget that HMRC would consider how to bring IHT, as it applies to transfers into trust, within the DOTAS regime and that the Government would consult on draft regulations over the summer. 4.5 The draft regulations are in two parts. The IHT Description Regulations provide the proposed description of arrangements that would have to be notified. The IHT Information Regulations set out how and when scheme promoters and users would have to provide prescribed information. The IHT Description Regulations 4.6 For a full explanatory note on the draft please see Part 1 of the Technical Note (Annexe D). 4.7 The proposed description intends that the DOTAS regime would apply to arrangements where property becomes relevant property (as defined in existing IHT legislation) and a main benefit of those arrangements is an advantage in relation to the IHT entry charge. (An advantage is defined elsewhere as the avoidance, reduction or deferral of a charge.) It applies only to schemes where the advantage obtained relates to the entry charge and it does not apply to the ten-yearly and exit charges on the trustees. 4.8 The proposed description would not apply to arrangements, which consist only of a transfer of property into trust where any of the following reduces or removes the charge to tax: Business Property Relief, Agricultural Property Relief, Conditional Exemption, or exemption on a transfer into a heritage maintenance fund. 4.9 This is to avoid the requirement to disclose straightforward situations where an individual simply transfers property into trust and relief or exemption is available in the same way it would have been had the property been gifted directly to another 7

8 individual. However, if there is any other element of the arrangements which is necessary to secure a tax advantage, this exemption would not apply HMRC wants to learn about schemes that are new and innovative, not schemes of which it is already aware. In order to restrict disclosures to new and innovative schemes, the draft amending regulations contain a grandfathering rule that would exempt from disclosure any scheme of the same, or substantially the same, description as a scheme that was first made available for implementation before a given date (which has yet to be determined). Question 1: Question 2: Question 3: Question 4: Question 5: Is the proposed description the best means of bringing IHT, as it applies to trusts, within the DOTAS regime? Does the exemption in draft Regulation 3 achieve the right balance so that avoidance schemes are disclosed whereas arrangements not involving avoidance are not? What arrangements that are not concerned with tax avoidance might be required to be disclosed under the proposed description? If you think an alternative description would be more appropriate, can you suggest one and explain why it would be preferable? Do you have any comments on the detail of the draft Regulations in Part A of the Technical Note? The IHT Information Regulations 4.11 For a full explanatory note on the draft please see Part 2 of the Technical Note (Annexe D) These regulations would amend the existing DOTAS Information Regulations in SI 2004/1864, broadly applying the existing information rules to IHT as they already apply to other taxes. The existing requirement and time limits for promoters or (where the promoter is offshore or there is no promoter) users, to disclose arrangements or proposals to HMRC would therefore apply to IHT Similarly, the existing requirements for promoters to provide information to clients, or clients of promoters to provide information to users, would also apply to IHT. In particular, promoters (or as the case may be, clients) who receive a scheme reference number (SRN) from HMRC, would have to pass that number to users While the main regime usually requires users to report implementation of a scheme by providing the SRN in an annual tax return, IHT does not have an annual reporting requirement. The draft regulations would therefore require users of a notifiable IHT scheme to disclose implementation by providing HMRC with the SRN outside an IHT account (return) in all cases, by means of a specified, stand alone form The time limit for providing this information would be twelve months from the end of the month in which the user first enters into a transaction forming part of the notifiable arrangements. This corresponds to the time limit for delivering an IHT account, had one been required in respect of that transaction The SRN system was designed to identify users of disclosed schemes and has worked successfully for the main DOTAS regime. HMRC believes that it is the simplest and most proportionate means of identifying IHT scheme users. The alternative would involve users identifying themselves in some way to HMRC without receiving a SRN from the promoter. This would be more complex, prone to error and burdensome than using SRNs. 8

9 4.17 Finance Act 2010 provides for promoters to provide periodic lists of users to whom they are required to issue SRNs. This provision is subject to an Appointed Day Order and will probably come into force later in Question 6: Question 7: Question 8: Question 9: Question 10: Do the proposed Information Regulations adequately apply the relevant parts of the existing information requirements to IHT? Is the SRN system the best means of identifying users of IHT schemes? If not, what is your preferred means and why would it be preferable to the SRN system? Is a stand-alone form the best means for a user of a notifiable IHT scheme to report the SRN issued by HMRC? If not, what is your preferred means and why would it be preferable to a standalone form? Are the proposed time limits appropriate for a scheme user to report the SRN etc to HMRC? Do you have any comments on the detail of the draft Regulations in Part 2 of the Technical Note in Annexe D? Impact assessment 4.18 An impact assessment is attached at Annexe B. Question 11: Do you have any comments on the assumptions made in the impact assessment? 9

10 5. Summary of Consultation Questions Question 1: Question 2: Question 3: Question 4: Question 5: Question 6: Question 7: Question 8: Question 9: Question 10: Question 11: Is the proposed description is the best means of bringing IHT, as it applies to trusts, within the DOTAS regime? Does the exemption in draft Regulation 3 achieve the right balance so that avoidance schemes are disclosed whereas arrangements not involving avoidance are not? What arrangements that are not concerned with tax avoidance might be required to be disclosed under the proposed description? If you think an alternative description would be more appropriate, can you suggest one and explain why it would be preferable? Do you have any comments on the detail of the draft Regulations in Part A of the Technical Note? Do the proposed Information Regulations adequately apply the relevant parts of the existing information requirements to IHT? Is the SRN system the best means of identifying users of IHT schemes? If not, what is your preferred means and why would it be preferable to the SRN system? Is a stand-alone form the best means for a user of a notifiable IHT scheme to report the SRN issued by HMRC? If not, what is your preferred means and why would it be preferable to a standalone form? Are the proposed time limits appropriate for a scheme user to report the SRN etc to HMRC? Do you have any comments on the detail of the draft Regulations in Part B of the Technical Note? Do you have any comments on the assumptions made in the impact assessment? 10

11 Annexe A: The Code of Practice on Consultation About the consultation process This consultation is being conducted in accordance with the Code of Practice on Consultation. The consultation criteria 1. When to consult - Formal consultation should take place at a stage when there is scope to influence the policy outcome. 2. Duration of consultation exercises - Consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible. 3. Clarity of scope and impact - Consultation documents should be clear about the consultation process, what is being proposed, the scope to influence and the expected costs and benefits of the proposals. 4. Accessibility of consultation exercise - Consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach. 5. The burden of consultation - Keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees buy-in to the process is to be obtained. 6. Responsiveness of consultation exercises - Consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation. 7. Capacity to consult - Officials running consultations should seek guidance in how to run an effective consultation exercise and share what they have learned from the experience. If you feel that this consultation does not satisfy these criteria, or if you have any complaints or comments about the process, please contact: Richard Bowyer, Consultation Coordinator, HMRC Better Regulation and Policy Team or hmrc-consultation.co-ordinator@hmrc.gsi.gov.uk 11

12 Annexe B: Impact Assessment Impact Assessment of Disclosure of Inheritance Tax Avoidance 12

13 Annexe C: Outline of the Current Disclosure Legislation The law for the disclosure regime is contained in a combination of primary and secondary legislation. The main provisions are as follows: 1. Part 7 of the Finance Act 2004 ( FA 2004 ), consisting of sections ; 2. Section 98C of the Taxes Management Act 1970 ( TMA 1970 ) (inserted by section 315 FA 2004); 3. Section 108 of the Finance Act 2007 ( FA2007 ), which amended Part 7 and section 98C; 4. Section 116 and Schedule 38 of Finance Act 2008 ( FA2008 ), which amended Part 7 and TMA 1970 section 98C); 5. The Tax Avoidance Schemes (Information) Regulations 2004, SI 2004/1864 (as amended) ( the Information Regulations ); 6. The Tax Avoidance Schemes (Promoters and Prescribed Circumstances) Regulations 2004, SI 2004/1865 ( the Promoters Regulations ); 7. The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006, SI 2006/1543 ( the Description Regulations ); 8. The Stamp Duty Land Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006, SI 2005/1868 ( the SDLT Description Regulations ); 9. The Tax Avoidance Schemes (Penalty) Regulations 2007, SI 2007/3104; 10. The Finance Act 2008, Schedule 39, (Appointed Day) Order 2008, SI 2008 No.1935 (C.93) ( the ADO 2008 ); 11. The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements)(Amendment) Regulations 2009, SI 2009/2033; 12. The SDLT Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2010, SI 2010/407 ( the SDLT Description Regulations ). Commentary on Part 7 FA 2004 and associated regulations Part 7 FA 2004 prior to FA 2007 The primary legislation for the disclosure regime is contained in Part 7 FA 2004, which consists of sections Unless otherwise stated, the statutory references that follow here are to those sections, some of which provide vires for secondary legislation. Section 306 defines notifiable arrangements and notifiable proposal which is a proposal for arrangements that would be notifiable if they were entered into. Part of the definition of notifiable arrangements entails the prescription by the Treasury, by regulation, of 13

14 descriptions of arrangements. These descriptions are contained in relation to the main regime in the Description Regulations. Section 307 defines promoter. Essentially a promoter is a person who either makes a proposal available for implementation or is to any extent involved in the design of arrangements. Subsection (5) provides that a person is not to be treated as a promoter by reason of anything done in prescribed circumstances. Prescribed here means prescribed by regulations (section 318), and the Promoters Regulations provide for 5 cases where a person who would otherwise be a promoter is not to be treated as such, including the legal privilege case mentioned below (under section 310). Section 308 sets out the first duties of a promoter: (a) subsection (1) obliges him to provide prescribed information about a notifiable proposal to the Board within a prescribed period after the relevant date, which is defined in subsection (2); (b) (c) he is also obliged under subsection (3) to provide prescribed information about notifiable arrangements within a prescribed period, unless they implement a proposal already notified under section 308(1). The information to be provided, and the time limits for doing so, are prescribed in the 2004 Information Regulations. Regulation 3 prescribes the information to be provided and regulation 4 prescribes the time limits; subsections (4) to (4C) provide a co-promoter rule whereby a promoter P2 is not required to notify a scheme under section 308 provided there is another promoter P1 who has notified the scheme and either: (a) P1 has provided P2 s details to HMRC with his notification or (b) P2 has obtained prescribed information (the Scheme Reference Number or SRN) from P1. In either case P2 must hold the information provided under section 308 by P1. This ensures that P2 will obtain a SRN either from HMRC or P1; (d) subsection (5) provides that a promoter does not have to notify the same, or substantially the same, proposal or arrangements more than once. Section 309 concerns the situation where the promoter is outside the UK, in which case if the promoter fails to comply with section 308, the obligation to provide prescribed information passes to the client. Under Section 310 the obligation also passes to the client where neither the promoter nor any other person in the UK is obliged to notify under section 308 (as a promoter) or section 309 (as the client of an offshore promoter). In practice section 310 applies where there is no promoter because: the arrangements are designed by an in-house tax department; or the promoter is a lawyer who cannot make a full disclosure without revealing legally privileged information in such a case he is not treated as a promoter for the purposes of the regime by virtue of regulation 6 of the Promoters Regulations. Section 311 provides that the Board may allocate a reference number, the SRN, in relation to a notifiable proposal or notifiable arrangement where a person has complied with sections 308, 309 or 310. Section 312 requires a promoter to provide a person to whom he supplies services in connection with notifiable arrangements (a client ), within 30 days of the relevant date (which is defined in section 312(2)), with prescribed information relating to any reference number issued by the Board. Regulation 7 of the 2004 Information Regulations prescribes the information it consists of the SRN only. 14

15 Section 312(A) provides that a client of the promoter must pass prescribed information (the SRN) on to another person whom he might reasonably be expected to know is a party to the arrangements and is expected to obtain a tax advantage. Subsection 313(1) requires any person who is a party to notifiable arrangements to provide the Board with prescribed information relating to: a reference number notified to him by the Board under section 311 or by the promoter under section 312; and the time when he expects to obtain, by virtue of the arrangements, an advantage in relation to any relevant tax, which is defined in subsection 313(2) by reference to the arrangements described in regulations under section 306. Subsection 313(3) provides that regulations under subsection 313(1) may, in prescribed cases, require: the reference number and other information to be included on any return or account that the person is required to make to the Board; or the same information to be provided separately to the Board at the prescribed time(s). Regulation 8 of the 2004 Information Regulations prescribes the information that a person who is a party to notifiable arrangements must notify to the Board under section 313. It also prescribes the cases in which the information is to be provided on returns, and the times at which it is otherwise to be provided: under paragraph (4) the prescribed information is: - the SRN allocated by the Board under section 311; and - the year of assessment, tax year or accounting period in which, or the date on which, the tax advantage is expected to be obtained; paragraphs (6) to (16) provide the detailed rules for reporting a SRN and other information in relation to income tax, corporation tax or capital gains tax. Section 314 provides that nothing in Part 7 requires any person to disclose legally privileged information. The effect of this, combined with regulation 6 of the Promoters Regulations and with section 310, is that the obligation to make a disclosure passes to the client. Section 315 inserts section 98C into the TMA 1970 providing penalties for failure to comply with the provisions of Part 7. Section 316 provides that the information required under sections 308(1) or (3), 309(1), 310, 312 or 313(1) must be made in a form and manner specified by the Board. The Board has specified in guidance that users who are not required to notify a SRN on their tax return must do so on form AAG4. Section 317 concerns the procedure for making regulations. Section 318 is interpretative and includes definitions of arrangements, tax, tax advantage and prescribed. Part 7 FA 2004 after FA 2007 Part 7 also includes a number of sections (inserted by Section 108 FA 2007), which provide, very broadly, that HMRC may investigate schemes where they have reasonable grounds to believe that a promoter has failed to disclose a notifiable proposal or notifiable arrangement, or that a promoter has failed to provide all prescribed information in connection with such a proposal or arrangement. The relevant sections are sections 313A, 313B, 314A, 306A and 308A. Finance Act 2010 (FA 2010) Section 56 and Schedule 17 of FA 2010 inserted new provisions into part 7 including new sections: 15

16 313ZA a requirement for a scheme promoter to provide periodic information about clients to whom it is required to issue a SRN; and 313C an information power, to require a scheme introducer (a person whose role is to advertise a scheme and introduce potential clients to a promoter) to provide HMRC with information, upon request, about who has supplied them with the scheme. These provisions are not yet in force. They are expected to come into force on a date late in

17 Annexe D: Technical Note including Draft Legislation The draft legislation is in the form of draft regulations. PART 1: The Draft IHT Descriptions Regulations STATUTORY INSTRUMENTS 2010 No. INHERITANCE TAX Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2010 Made *** Laid before House of Commons *** Coming into force - - *** The Treasury make the following Regulations in accordance with the powers conferred by section 306(1)(a) and (b) of the Finance Act 2004(1). Citation, commencement and interpretation 1. (1) These Regulations may be cited as the Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2010 and shall come into force on [ ]. (2) In these Regulations the 1984 Act means the Inheritance Tax Act 1984(2); property shall be construed in accordance with section 272 of the 1984 Act(3); relevant property has the meaning given by section 58(1) of the 1984 Act(4); relevant property entry charge means the charge to inheritance tax which arises on a relevant property transfer; relevant property transfer means a transfer of value made by an individual during that individual s life as a result of which property becomes relevant property; transfer of value has the meaning given by section 3(1) of the 1984 Act. (1) 2004 c. 12. (2) 1984 c. 51. By virtue of section 100(1) and (2) of the Finance Act 1986 (c. 41), on and after 25th July 1986 the Capital Transfer Tax Act 1984 may be cited as the Inheritance Tax Act 1984, and any reference in that Act to capital transfer tax is to have effect as a reference to inheritance tax, except where the reference relates to a liability to tax arising before 25th July (3) The definition of property was amended by section 119(1), (4), (6), and (7) of the Finance Act 2002 (c. 23). (4) Section 58(1) was amended by section 203 (1) and (3) of the Finance Act 2004, paragraphs 7, 18 and 19 of Schedule 20 to the Finance Act 2006 (c. 25) and paragraphs 18 (1) and (3)(a) of Schedule 29 to the Finance Act 2008 (c. 9). 17

18 Prescribed description of arrangements in relation to inheritance tax 2. (1) For the purposes of Part 7 of the Finance Act 2004 (disclosure of tax avoidance schemes) the arrangements specified in paragraph (2) are prescribed in relation to inheritance tax. (2) Arrangements are prescribed if (a) as a result of any element of the arrangements property becomes relevant property, and (b) a main benefit of the arrangements is that an advantage is obtained in relation to a relevant property entry charge. (3) Arrangements are excepted from disclosure under this regulation if (a) they are excluded by virtue of regulation 3; or (b) they are of the same, or substantially the same, description as arrangements which were (i) first made available for implementation before [ ]; or (ii) in relation to which a promoter first made a firm approach to another person before [ ]. Excluded arrangements 3. (1) Arrangements are excluded from being prescribed arrangements for the purposes of these Regulations if they do not include any element, which is necessary for the purpose of securing a tax advantage, other than one or more of the steps described in paragraph (2). (2) The steps referred to in paragraph (1) are making a relevant property transfer (a) to which relief under either one or both of the following provisions of the 1984 Act applies (i) section 104(5), (business property); (ii) section 116(6), (agricultural property); (b) which is exempt with respect to any property under section 27 of the 1984 Act(7) (maintenance funds for historic buildings); (c) which is exempt with respect to any property under section 30 of the 1984 Act(8) (conditionally exempt transfer). Date name name Two of the Lord Commissioners of Her Majesty s Treasury. (5) Section 104 was amended by section 58 and paragraph 4 of Schedule 8 to the Finance Act 1987 (c. 51) in relation to transfers of value made after 16 March 1987 and by paragraphs 1 and 8 of Schedule 14 to the Finance (No 2) Act 1992 (c. 48) in relation to transfers of value made after 9 March (6) Section 116 was amended by paragraphs 4 and 8 of Schedule 14 to the Finance (No 2) Act 1992, section 155 and Schedule 29, Part XI to the Finance Act 1995 (c. 4), section 185 and Schedule 41 Part VI to the Finance Act 1996 (c. 8), and section 122(1) and (4) of Finance Act 2009 ( c.10). (7) Section 27 was amended by section 144 of the Finance Act 1998 (c..36). (8) Section 30 was amended by section 94 and paragraph 1 of Schedule 26 to the Finance Act 1985 (c.54), paragraph 7 of Schedule 19 to the Finance Act 1986 (c.41), paragraph 2 of Schedule 25 to the Finance Act 1998 and regulations 3 and 11 of the Tax and Civil Partnership Regulations (S.I 2005/3229). 18

19 Commentary Draft regulation 1, paragraph 1 provides the name of the regulations and the date on which they would come into force (which has yet to be determined). Paragraph 2 provides several definitions. Property, relevant property and transfer of value are cross-referenced to the Inheritance Tax Act 1984 (IHTA 1984) and retain the definitions given there. It then provides two new definitions: Relevant property transfer is defined as a transfer made by an individual during his or her lifetime, as a result of which property becomes relevant property; Relevant property entry charge is the charge on a relevant property transfer. It refers to the charge that arises under section 1 IHTA 1984, when property is transferred into a relevant property trust. The rate of charge is 20% of the value above the nil rate band by virtue of subsection 7(2) IHTA 1984 (unless the transfer occurs within seven years of the transferor s death). Draft regulation 2, paragraph 1 provides that the arrangements specified in paragraph 2 would be prescribed for the purposes of Part 7 of Finance Act 2004 (FA 2004). Section 306 FA 2004 requires arrangements to be prescribed by Treasury regulations and this paragraph would give effect to this in relation to IHT. Section 318 FA 2004 already includes IHT in the definition of taxes that are prescribed. Paragraph 2 sets out the description of the arrangements which would have to be disclosed. There would be two conditions to be satisfied in order for arrangements to be prescribed: The first is that any element of those arrangements would result in property becoming relevant property; and The second is that a main benefit of the arrangements would be to obtain a tax advantage in relation to the relevant property entry charge. Tax advantage is defined in section 318 FA2004 as the avoidance, reduction or deferral of a tax charge. This description would therefore cover any arrangements which result in property belonging to an individual becoming comprised in a relevant property trust but where either no relevant property entry charge arises or that charge is reduced or deferred. The description is not confined to situations where property becomes relevant property immediately as a result of a transfer of value by an individual into trust. It can apply if there are additional elements or steps involved in the arrangements which result in the property becoming relevant property at a later stage. Paragraph 3, however, provides exceptions to this. Arrangements would be excepted if they were excluded by regulation 3 or the grandfathering rule applied. The intention of the grandfathering rule is to limit disclosure to new and innovative schemes. It would do this by excluding schemes, or schemes substantially the same as those, which: were already available for implementation before a certain date, or a promoter had made a firm approach on to an introducer before that date. The date has yet to be determined. The second bullet refers to changes to section 308 FA 2004 by Finance Act The new provision is subject to regulations being made to bring it into effect. Once regulations have been made it will apply where arrangements have been substantially designed and the promoter has made a marketing contact with another person who acts as introducer. It would be a matter of fact whether an arrangement fell with this grandfathering rule. Evidence would include the existence and substance of the arrangement being clearly described in guidance manuals, publications or promotional literature; or a practitioner s own record of when he or she had made it available. Draft regulation 3, paragraph 1 sets out the specific exclusion mentioned in the previous regulation. Arrangements would be excluded if they consisted only of a lifetime transfer into a relevant property trust which attracted one or more of the reliefs or exemptions, specified in paragraph 2. If there were more elements or steps to the arrangements, which were necessary to secure a tax advantage, then the exclusion would not apply. 19

20 Paragraph 2 lists the reliefs and exemptions. They are: business property relief (section 104 IHTA 1984), agricultural property relief (section 116 IHTA 1984), exemption for maintenance funds for historic buildings (section 27 IHTA 1984), and conditional exemption (section 30 IHTA 1984). The purpose of this regulation is to exclude straightforward arrangements that result in a tax advantage but consist only of two elements, namely the transfer by an individual of property into a relevant property trust and a claim to relief or exemption. Without this exclusion, the transfer, for example, into a family trust of a business which qualified for 100% business property relief would fall within description in regulation 2. It is not the intention for such straightforward transactions, where there are no other elements or steps to the arrangements, to be disclosed. The exclusion allows a combination of the specified reliefs and exemptions. This is to cover, in particular, situations where the transfer includes a claim to both business property and agricultural property reliefs. 20

21 PART 2: The Draft IHT Information Regulations STATUTORY INSTRUMENTS 2010 No. INHERITANCE TAX Tax Avoidance Schemes (Information)(Amendment)(No.xx) Regulations 2010 Made *** Laid before House of Commons *** Coming into force - - *** The Treasury make the following Regulations in accordance with the powers conferred by sections 308(1) and (3), 309, 310, 312, 312A, 313(1) and (3), 317(2) and 318 of the Finance Act 2004(9). Citation, commencement and effect 1. (1) These Regulations may be cited as the Tax Avoidance Schemes (Information) (Amendment) (No. X) Regulations 2010 and shall come into force on [ ]. (2) These regulations do not have effect in respect of proposals or arrangements (as the case may be) which are notifiable by reason of the Inheritance Tax Avoidance schemes (Prescribed Descriptions of Arrangements) Regulations 2010(10) (a) for the purposes of section 308(1) of the Finance Act 2004, if the relevant date in relation to a proposal falls before [x]; (b) for the purposes of section 308(3) of the Finance Act 2004, if the date on which the promoter first becomes aware of any transaction forming part of the arrangements falls before that date; (c) for the purposes of sections 309 or 310 of the Finance Act 2004, the date on which any transaction forming part of the arrangements falls before that date. Amendment of Tax Avoidance Schemes (Information) Regulations The Tax Avoidance Schemes (Information) Regulations 2004(11) are amended as follows. 3. (1) Amend regulation 2 (interpretation) as follows. (2) After the definition of the Arrangements Regulations insert the IHT Arrangements Regulations means the Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2010;. (3) In the definition of the prescribed taxes after income tax insert, inheritance tax. (9) 2004 c. 12. Section 318 is cited because of the meaning it ascribes to prescribed. (10) S.I. xxxx/xxxx. (11) S.I. 2004/1864 to which there are amendments not relevant to these Regulations. 21

22 4. (1) Amend regulation 3 (Prescribed information in respect of notifiable proposals and arrangements) as follows. (2) After the words Arrangements Regulations in paragraphs (1)(b), (2)(b), (3)(c) and 4(b), insert, the IHT Arrangements Regulations. 5. (1) Amend regulation 8 (Prescribed information under section 313: timing and manner of delivery) as follows. (2) In paragraph (3)(a) after (14A) insert and paragraph (14C). (3) In paragraph (3)(b) after (15) insert and, as the case may be, (14C). (4) In paragraph (5) after (14) insert and (14C). (5) After paragraph (14B) insert (14C) In the case of an individual who enters into arrangements to which the prescribed descriptions in the IHT Arrangements Regulations apply, the individual must provide the information prescribed in paragraph (5) to HMRC in such form and manner as they may specify within a period of 12 months of the end of the month in which the individual first enters into any transaction forming part of such arrangements.. Date name name Two of the Lord Commissioners of Her Majesty s Treasury 22

23 Commentary Draft regulation 1 provides the name of the regulations and the date on which they would come into force (which has yet to be determined). Paragraph 2 provides a transitional rule so that notification would not be required where schemes are made available for implementation or any transaction forming part of the arrangements falls before a date to be specified. Draft regulation 2 amends the Tax Avoidance Schemes (Information) Regulations 2004 (the 2004 regulations). This would effectively insert IHT in the main information regime and the following regulations specify the actual amendments. Draft regulation 3 amends regulation 2 of the 2004 regulations (which deals with the interpretation of those regulations). It amends the definition of the Arrangement Regulations to include the IHT description regulations and also to include IHT within the list of prescribed taxes. This would extend the main information regime to IHT. Draft regulation 4 amends regulation 3 of the 2004 regulations (which prescribes the information that is required in respect of notifiable arrangements). It would ensure that references to Arrangement Regulations include the IHT description regulations. Draft regulation 5 amends regulation 8 of the 2004 regulations (which deals with how and when scheme users must provide prescribed information to HMRC, in particular the Scheme Reference Number (SRN)). It would introduce a new paragraph 14(C) and ensure that all the relevant references to that new paragraph were present. The new paragraph 14(C) of the 2004 regulations would provide the timing and manner of delivery of the prescribed information that users of notifiable IHT schemes would have to submit to HMRC. They would do so on the form specified by HMRC in guidance. We expect this to be existing form AAG4, amended or adapted as necessary to accommodate IHT schemes. The time limit for doing so would be twelve months from the end of the month in which the user made the initial transfer of property. The information that the user would have to provide is prescribed in paragraph 5 of regulation 8 of the 2004 regulations, namely: the name and address of the person providing the information, any HMRC reference number allocated to the user, the SRN, the date on which the user obtained the tax advantage, and the name and capacity of the person making the declaration as to the accuracy and completeness of the notification. 23