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Draft IHT disclosure rules are potentially wider than for any other tax, warns Boodle Hatfield

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The Government has published revised regulations attempting to narrow the scope of a new IHT-specific hallmark under the Disclosure of Tax Avoidance Scheme ('DOTAS') rules, but the latest draft is still too wide according to Geoffrey Todd, a Partner in the Private Client & Tax team at Boodle Hatfield.

The current proposals were published on 20 April and are out for consultation until 13 July.

The latest draft regulations will require advisers and their clients to disclose to HMRC all "contrived or abnormal" arrangements designed to save IHT.  Those terms are not defined but fall to be judged though the eyes of an “informed observer” – presumably someone who knows about IHT planning. 

Todd says: “It can be difficult even for professional advisers to gauge what could be regarded as ‘contrived’ or ‘abnormal’, making the rule very uncertain for clients and their advisers to apply in practice.”

Until recently, the DOTAS rules only applied to IHT in a very limited way, applying to just one type of IHT charge on a lifetime transfer into a trust.  The Government has wanted to bring all IHT charges within the scope of the rules for some time and has now done so by extending the existing ‘confidentiality’ and ‘premium fee’ hallmarks to IHT alongside the other main taxes with effect from February this year.

Todd adds: “It is not clear why IHT has been singled out for a further rule, to be introduced later this year, that doesn't apply across the rest of the tax system – there is no equivalent requirement to disclose income tax or capitals gains tax arrangements simply because they could be seen to be contrived or abnormal.”

There will be no ‘grandfathering’ for existing forms of IHT planning and the only exceptions to the proposed new IHT disclosure rule are limited to four very specific insurance bond schemes.  In theory, the rule could require disclosure of a wide range of IHT arrangements that are entirely legitimate in tax planning terms.

Todd says: “Anyone advising on inheritance tax may wish to make representations before 13 July or we may be faced with a potentially broad and uncertain rule, with only quite basic, ‘high level examples’ to guide us.”

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