The plan may not survive scrutiny. The variation and share
sale may be two discrete rights that make an aggregate wrong.
1 Reading back for tax may not be secured. An attempted double
dip may end up as a single dip, or none at all although insured against, and with cost hassle and HMRC’s future wrath (the bad loser legacy). Establishment
hostility can only tolerate sub-optimisation of tax liability if adventitious; if planned it constitutes moral turpitude.
2 As a variation must be of the Will’s dispositions,
operating as a Saunders v Vautier
operation, it excludes the viable single dip alternative: formal exercise of trustees’
powers, of resettlement or appointment to W, with operative BPR by succession
to H, but retention of the shares in trust.
3 Surely the purchase price of the shares cannot be proscribed
“consideration” as being for the variation instead of or as well as for the
shares? A court will determine whether any concomitant cash transfer is
Prudently the price should be “£X or market value agreed
with SVD” to avoid a chargeable trust event/transfer by W as purchaser, depending
on who benefits from the “undervalue”.
4 Ramsay in 1981 gave
us “alternative fact” jurisprudence in tax. The (divinely revealed) prescriptive
formula for a series of transactions was, it turns out, an illusion. By 2004 (BMBF) we had become liberated from the primitive “literal” approach to statutory construction by the more subtle “purposive”, or by the even more sophisticated “contextual” (a
subliminal synthesis of both approaches with wide judicial discretion as to
admissible evidence of context). Or naked judicial legislation promoting huge uncertainty of
And judges are not constrained to reconcile or tidy the mayhem of the
real world consequences for the butchered actual transactions (e.g. the share
sale proceeds in Furniss belonged in law not to the judicially-identified “real” purchaser but to the interposed company).
So a Court could decide that the variation was “really” of
cash not of shares, causing an unwelcome IHT charge in the estate of H, an own goal as no BPR available (just as in Carreras the short-dated debenture was “really” cash).
2004 seems to have left open the defence of “not pre-ordained” where a series step
is genuinely contingent, as in Craven v
White. If there is a “practical likelihood” of the share sale not occurring
it might be excluded from the context. The contingency must be so genuine that even a judge would recognise it.
5 The GAAR looks a threat. The plan could be an “arrangement”
to gain a tax advantage that might not pass the double reasonableness test.
While it might be a stretch to regard the share sale as “contrived or abusive”, it could contravene “policy principles or objectives” or “exploit shortcomings
in the provisions” and so be “abusive”.
A “just and reasonable” counteraction proposal to the taste
of the sub-panel could well be the single dip alternative in 2 above (as most likely:
Guidance, B 13.3). So W might achieve BPR personally by surviving 2 years but,
if not by 7, at the cost of a clawback of it in the trust at 40% less any taper
6 DOTAS cannot be ignored given the £5000 fine and the
short notice period. If the user is obliged to file form AAG3 it must be done
within 30 days of the variation (as where there is no UK promoter or a lawyer promoter
An “informed observer” could well decide the special IHT
hallmark applied. The variation arguably effects a “relevant property entry charge”, at
least it would in the absence of reading back, though it is less clear that the share
sale is “contrived or abnormal”.
Ominously, example 16 in para 13.5 of the Guidance “might
be notifiable”. It is the single dip alternative, more or less.
The obligation to notify is not dependent on whether the arrangement
works, though that must affect the Tribunal’s view of reasonable excuse or the
amount of penalty, if not HMRC’s enthusiasm to seek one.
It does not prejudice the ultimately correct tax treatment
and may prove a benefit in disguise by engaging HMRC attention early on. A successful variation
with reading back does not increase the estate’s IHT and makes the DT acquire
as legatee for CGT. As separate elections have been abolished, the first
opportunity for HMRC to challenge a reading-back variation may properly arise only
some way down the track, when the trustees report a CGT disposal of the shares.