The major implication of HMRC’s opinion in IHTN16068 is that a £1m gift into a bare trust for a minor with s31 applying is a PET not a CLT. On this interpretation rides exposure, or not, to a 20% tax current charge with possible additional uplift.
In Sippchoice [2020] UKUT 149 the Tribunal said:
" 44. Nonetheless, the fact that HMRC’s pensions tax manual contains passages that support Sippchoice’s case carries little weight in this case. Sippchoice has not sought to make any argument that it relied on the passages or had a legitimate expectation that HMRC would not resile from them. Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law. We must interpret the legislation in accordance with the principles of construction described above and if we conclude, as we have, that the legislation bears a different meaning to that found in the HMRC manual, the legislation must be preferred"
Crown Counsel was instructed to argue that the Manual was wrong in law so HMRC would win. It is possible JR would have succeeded.
in Lobler [2013] UKFTT 141 legislation was held, per the headnote, to have had an “outrageously unfair effect on taxpayer”. HMRC in Uriah Heap mode bleated that it hurt them more than him and the crocodile tears fell (not too many). He was rescued later by the UT at [2015] UKUT152 finding, equally outrageously, that he could be saved by rectification.
HMRC are entitled to their opinion on the law, even if it is not shared by others. It is helpful for them to express it in a Manual. I do not accept that they are morally entitled to instruct Crown Counsel as above. In reality this scurrilous approach takes place regularly not before the Tribunal but in correspondence where taxpayers and advisers are bullied into accepting the party line by inequality of arms.
In the short term, if HMRC forms the internal view that their interpretation is unsound, they should like any commercial litigant concede. Such a litigant would then face costs even before action was joined. It should not subject a taxpayer to a JR claim let alone force a part 54 action and definitely not argue at a without notice hearing that the time limit had been exceeded.
HMRC would do well not just to read their own Litigation and Settlement Strategy but to truly believe in it:
"HMRC does not have a monopoly on understanding how tax law applies to a particular set of facts.
Where HMRC believes that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue. Taking a case to litigation where HMRC believes it is unlikely to succeed would need to be justified by the particular circumstances, such as a very large amount of tax at stake (in the case itself or from immediate precedent value where a large number of customers is affected), or a fundamental point of principle or behaviour at issue." Surely not the case in Sippchoice.
Ultimately the Lobler result was corrected by legislation. It would be better to have got the law right first time. Opportunites to correct unwanted anomalies in the law are regularly spurned by HMRC. They routinely turn a deaf ear to advance warnings. It is not appropriate for a Government Agency including the NHS and Post Office to defend its institutional reputation in order to save face beyond what is fair and rational.
Advisers and clients cannot easily disarm Goliath but they can exercise caution about what credence they give to statements from an adversary with such a dubious track record.
Jack Harper