Estate Planning Guide

16 THE ESTATE PLANNING LANDSCAPE 17 THE ESTATE PLANNING LANDSCAPE The HMRC guidance states that, “The inclusion of the words ’contrived or abnormal’, and the requirement for them to be considered by the hypothetical informed observer, mean that normal and straightforward IHT planning will not be notifiable”. It is the more complex structures that are being targeted, such as trust structures with additional features for added protection of the trust assets where it may be considered unusual to go to those lengths. The new guidance confirms that there is no requirement to notify HMRC of IHT planning that was made available before 1 April 2018 that would not have been notifiable at that time. But where that proposal is implemented again on or after 1 April 2018, there is a duty to notify. Nevertheless, the established practice exception is intended to ensure any established IHT planning schemes whose workings are well understood and agreed by HMRC will not be notifiable. ARRANGEMENTS THAT ARE NOT NOTIFIABLE HMRC’s guidance, entitled Determining a DOTAS IHT scheme – the tests, confirms the following, although their caveat is that “arrangements must always be tested against all relevant hallmarks”: • Ordinary outright gifts are not notifiable, even where they are exempt • Regular gifts out of income • Transfers of value equal to the available NRB into trust, which may be repeated every seven years • Making a lifetime transfer to a bare trust for a minor beneficiary • Executing a Will, deed of variation or disclaimer which gives rise to exemption from IHT – for example, executing a Will that leaves property to an exempt beneficiary such as the spouse or a charity, and executing a deed of variation to transfer assets on death to an exempt beneficiary. • Acquisition of property which qualifies for a statutory relief or a transfer which is specifically provided for in the IHT legislation – for example, purchase of shares which will qualify for BR after they have been owned for two years, or gift of land where the donor continues to use that land but pays full consideration for their use. • Arrangements which may not result in a reduced IHT tax liability, but which cap the value subject to IHT – for example Gift and Loan Trusts/Loan Trusts. The same guidance also provides examples of arrangements that might be notifiable and those that are notifiable. The guidance states that, “Where arrangements include multiple steps in order to achieve the intended tax advantage however, there becomes an increased likelihood that they may be notifiable.” ARRANGEMENTS THAT MIGHT BE NOTIFIABLE Arrangement to gift shares which qualify for BR into trust and subsequently sell the shares back to the transferor. ARRANGEMENTS THAT ARE NOTIFIABLE • Creation of a reversionary lease • Employee benefit trusts (EBTs) Office of Tax Simplification In January 2018, chancellor Philip Hammond sent a letter to the Office of Tax Simplification (OTS) instructing the office to undertake a review of the IHT regime with the overall aim of identifying, “opportunities and develop recommendations for simplifying IHT from both a tax technical and an administrative standpoint.” The OTS will publish its report in autumn 2018 and will look at issues including the process for IHT returns submissions and paying any tax, the various gifts rules, routine estate planning practicalities, probate procedure, taxation of trusts and any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules. The OTS has also published a paper, entitled Business Lifecycle Report: April 2018 Simplifying the taxation of key events in the life of a business. The paper is an initial review focusing on businesses owned by individuals and families and examining the tax issues and reliefs that impact at various points in the business lifecycle, including when succession is under consideration. Included in the review are gift holdover relief, BR, APR and PETs. Again, the simplicity of operation and administration is the focus. The paper is designed to engender discussion about what it sees as, “a pressing need to undertake a detailed review of the tax system as it operates on key events in the business lifecycle, to help the UK economy to maximise its opportunities and to make the system clear and simple for companies to understand and use.” More detail on this can be found at: https://www.gov.uk/government/publications/disclosure-of-tax-avoidance-schemes-guidance https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/691437/Determining_a_DOTAS_IHT_scheme.pdf SOURCE: BUSINESS LIFECYCLE REPORT: APRIL 2018 SIMPLIFYING THE TAXATION OF KEY EVENTS IN THE LIFE OF A BUSINESS, OFFICE OF TAX SIMPLIFICATION, APRIL 2018 Business Lifecycle of events Growth Start-up Financing Disposal/Succession Incorporation First employee Move to new premises First export sale Register for VAT LTD