The deceased died intestate and she leaves a husband and daughter and an estate well over the IHT thresholds. I have been asked to prepare a deed of variation to vary the rules of intestacy so that the estate passes to the deceased’s husband so that spouse exemption can be claimed on the estate (IHT400 not being prepared by me, but by Accountants). The Accountant advised the father and daughter that this can be done and then the father can then make gifts back to the daughter, survive 7 years and happy days then outside of his estate…
Before I knew all of this, I prepared the simple deed of variation and sent it to the daughter who then emailed me asking for a binding assurance that her father would transfer various assets to her when the deed of variation has been done and that she wants the various property transfers done at the same time…the deceased had various properties in her sole name when she died and the daughter wants 50% of those properties transferred back to her, with the other 50% being held as joint tenants with her father so that they will automatically pass to her on his death (he has children from another marriage). I told the Accountant that this amounts to consideration and that there is clearly an agreement between father and daughter (Lau style) and spouse exemption would be denied. Surely when the deed of variation is sent to HMRC with the IHT400 to claim spouse exemption they will query whether any agreement/undertaking has been made and the Accountant will have to disclose that there has! There is evidence now on my file and also the Accountant’s file showing exactly what the “plan” is and the agreement that has been reached between father and daughter.
I advised that the way forward is to do a IPDI in favour of the father, with overriding termination powers. That the IPDI would need to be for more than 2 years to satisfy s.142(4) IHTA. I said that the downside of course would be that the father has to survive for over 9 years really as the 7 years will run from termination of the life interest, which would be after 2 years. Despite me advising all of that, the Accountant met with the daughter and father yesterday and came up with the “plan” in para 3 and said they are mindful of the advice I have given but still want to basically go ahead with it and how long should they wait before making the gifts… In my mind, no time limit is going to be good enough, as there is clearly a plan and agreement between father and daughter at the point the deed of variation is being done…
Am I right going back to the Accountant to say all that and again advise that the only safe way forward is the IPDI route?
For 30 years of my 50 in practice I was in the fortunate position of being able to unilaterally sack undesirable clients, albeit at total risk to unbilled fees. I can’t fault your advice. We all have naive clients, some who ask questions that ideally would not be asked at all. Even the naive can bring us down, as effectively as the contumacious. I would reiterate your sound advice and decline to offer any about “the plan”. On the contrary I would definitively rubbish it (Quod scripsi, scripsi). Let those others with the consciences of a well-trained hippopotamus advise and hazard the unwelcome attention of the SRA/SDT or a supervisory accountancy body or HMRC, bearing interest and penalties and blacklist (Oh yes there is!), and even the supine/overburdened and slightly maligned Inspector Knacker of the Yard.
The accountant appears to me to be in breach of the Professional Code in Relation to Taxation, to which I anticipate their professional body is party.
I might be inclined to draw this to the accountant’s attention and consider if you have any obligation under the PCRT to flag the matter further.
I can understand the accountant wishing to assist their clients, but at what cost? I am sure that professional bodies are likely to take a very dim view of members turning the Nelsonian eye when they have already been advised in clear terms that what they are doing is wrong. As regards the request for the binding assurance, this is merely trying to get someone else to put their neck on the block alongside the accountants.
As regards the instruction to prepare the IoV, I suggest you walk away as you risk being drawn further into an inappropriate situation.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Many of my clients belonged to that notorious (definitely) not for profit society “The Ancient Practitioners of False Economy”. It seems the Father does not have an impaired life because even down the primrose path he still has to survive the gift back by 7 years and on Natalie’s sound alternative 9 or more. It should be possible subject to health and cost to insure both the PET failing (with taper relief if relevant) within the 7 years after appointment and the knock on loss of the NRB/part during the whole of the 7, plus the risk of dying while the IPDI is operative and before the appointment can be made. Whatever our professional duty impel us, we just cannot save some clients from themselves or from dangerous advisers who tell them what they want to hear.
The integrity of the trustees of the IPDI trust should save the alternative from the GAAR or purposive construction Ramsay-style but not necessarily trustees who ask the family for instructions about how they should exercise their powers, not least in advance of creating the IPDI. Indeed a cut and dried prior understanding may be seen as consideration by a judge who likes purposively to reverse engineer the facts as, surprise surprise, they turn out to be.
I agree. There are defences to the most likely offences which an honest adviser might commit, arranging, failure to disclose and tipping off. A professional legal adviser can be covered and also a relevant professional adviser (who can be an accountant, so wider than LPP). But information must have been obtained in connection with giving “legal” advice (unless a criminal purpose is afoot). So just advising that “the plan” does not work and then withdrawing may be enough. In point too is the tipping off defence that exonerates a disclosure to the adviser’s client in order to dissuade them from engaging in the naughty conduct. Even so advisers may feel the need for self-preservation and to turn to SARs and their engagement letter. Never mind the clients one serves!
There is also Part 3 of the Criminal Finances Act 2017. A company or partnership may be criminally responsible for the tax evasion facilitation offences of employees, agents and service providers, unless it has reasonable prevention procedures in place or these cannot reasonably expected to be in place.
It is not yet a substantive criminal offence for anyone at all to fail to disclose knowledge or suspicion of someone else’s tax evasion but the full GDR experience beckons.
I am not sure people on here should in general be sending to third parties actual copies of forum members’ contributions as opposed to repeating the contents.
A rule I learned very early on was never to put in writing anything you would not want a judge to read out in open court. Accordingly I stand by any contribution I have made, even the most polemical, but it was made in a given context.
I am aware things said on here can appear on Google, and as HMRC read them I therefore revel in robustly criticising their delinquencies; eavesdroppers cannot expect to hear only good of themselves. So I regard this place as in the public domain and I am not going to attach a disclaimer to everything I say, unlike some big organisations that the law of defamation protects me from naming. They know who they are.
I am hoping too that no jobsworth Political Commissar will pursue the view that I am advising here while retired and so doing without being still regulated within an inch of my life by an AML supervisory body.
I think the accountant should take personal specific advice rather than rely on an extract from the equivalent of the Reader’s Digest or risk being dobbed in to his professional body per the PCRT/ receiving a letter before action from his client. Not sure how far anyone in Natalie’s position should be getting involved in trying to educate the accountant or indeed her client, if they still are such, on what either should do or not do about the inglorious “plan”.
Enjoying this thread - but whilst i believe it is correct to state …‘the IPDI would need to be for more than 2 years to satisfy s.142(4) IHTA’ (i.e set up to run potentially for more than 2 yrs) am I correct in thinking the overriding powers could be exercised within 2 years of death as S.144 only applies to Discretionary Trusts…and therefore the survivorship period could be less than 9 years?
The IPDI must endure for as long as it takes to generate significant incontrovertible evidence that it is not a chimera. Not “Now you see it (the variation) now you don’t!” This to avoid its being potentially cut down by Ramsay, the GAAR, or contextual judicial construction. Traditionally referred to as the tax adviser’s “decent interval”. Never guaranteed so no promises can be made. Agree about s144. A variation is not a s144 (1) “event” Where s142 applies it is treated as made by the deceased and not by a RPT chargeable event: the “settled property” retrospectively never entered the RPT regime.
Outside s142, however, but within the 2 years it is within s144 and the wait is necessary or s144(2) will scupper the intended PET and treat the remainders vesting on the Life Interest terminating as a gift out of the deceased’s estate by Will. Not therefore applicable to a variation of the intestacy rules.
Touché Jack but as it is a public forum, Non-step members can look at it. It was just that the comments made were very valid and helpful I would think to Natalie.
I believe there is a distinction between a trust created via a Deed of Variation and one that is created by Will. The overriding powers can be exercised in the latter at anytime to trigger the seven year clock.
A trust created by deed of variation can include the same terms as a will, there need be no distinction other than for perpetuity (as the 125 years will have a different start date) and the definition of beneficiaries (if any are born or die between the date of death and the date of the deed).
The main distinction would likely be the effect of exercising any power to exclude or reduce an interest in possession within 2 years of the death, as s.142(4) will apply to the variation, but not to the trusts of the will.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
