The DOTAS reporting parameters for IHT are vague. Do members take the approach that a report should be submitted just in case? If so, what are the downsides of this approach and what are the experiences of those who
have submitted a report?

Simon Northcott

There were new DOTAS rules introduced from April this year and these are aimed at aggressive IHT solutions rather than the main solutions offered by providers and used by the majority of financial advisers. The HMRC guidance is available here:

The new hallmarks apply from April 2018 however there is an exception for arrangements that were deemed acceptable before 1 April 2018 and the guidance confirms this:
“The exception applies to arrangements which implement a proposal which has been implemented by related arrangements. It follows that the proposal which is being implemented by the present arrangements has to be the same proposal that was implemented by the related arrangements before 1st April 2018. The exception does not apply to arrangements which implement a different proposal. That other proposal must be considered on its own merits.”

“By way of example, Insurance Co have offered their clients a Discounted Gift Trust v1.0 since 2010. This proposal was first implemented in 2010 and continues to be offered in April 2018 in exactly the same way. The implementation of this proposal by arrangements entered into after 1st April 2018 would be the implementation of a proposal that has previously been implemented before 1st April 2018 and which, subject to satisfying the established practice requirements, would be within the exception. The arrangements would still have to be tested against the confidentiality and premium fee hallmarks but if they accord with established practice they would seem likely not to be notifiable under the IHT hallmark.”

Francesca Gandolfi
Canada Life

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One of the problems with the new ‘Disclosure’ legislation, (S.I. 1172/2017, para.3/5) that you refer to, is that it ‘excepts’ schemes i.e , discounted gift, loan trusts and others that the HMRC had previously held to be ‘aggressive’ tax avoidance for many years and had never been definitely determined by any Court. Since 1st April 2018, flowing many Consultations, those schemes have been ‘legitimised’ by HMRC’s own ‘accepted practices’ doctrine rather than by the legitimate powers available to the Treasury under section 306(1) of the 2004. While the Treasury had power to define the schemes that must be notified to the HMRC, the HMRC have taken it upon themselves to tidy up some longstanding and outstanding issues and used ‘accepted practices’ to except (not exempt) those schemes previously deemed as aggressive avoidance prior to April 2018. This new status was concluded on the basis that insurance based schemes were now sold as legitimate tax planning utilising only the available exemptions and reliefs. Unfortunately, the perception that, as far as, loan trusts are not ‘notifiable’ if the bond exceeds the exemptions/reliefs available to the client, is not clear in the Guidance. Is it to be disclosed or not; What is the situation if, for example, the client sets up a loan trust using all available exemptions/reliefs with an outright gift and then lends a substantial sum to the trustees. Is that arrangement caught by the new Rules?. Grateful for any thoughts.

Paul Desmond Doherty

Paul asks the question " What is the situation if, for example,
the client sets up a loan trust using all available exemptions/reliefs with an outright gift and then lends a substantial sum to the trustees. Is that arrangement caught by the new Rules?" The answer is on page 103 of the guidance referred to by Francesca.
This says:

"To an ‘uninformed observer’ the creation of a trust might
seem like an unusual and therefore abnormal thing to do. Equally the idea of creating a trust and then making a loan to the trustees of that trust might seem contrived to an uninformed observer.

"However, whether arrangements are contrived or abnormal,
or involve contrived or abnormal steps, has to be considered from the point of view of an ‘informed observer’.

“A straightforward trust arrangement is not contrived
or abnormal in this context. Nor is the making of a loan to trustees of a trust that an individual has set up.”

See also example 14 on page 112 of the guidance.

Paul Thompson

Canada Life

Thanks Paul.
I have been asked to advise on the outcome of substantial loans to a trust specifically as to whether Disclosure is required.
My concern is with the new Disclosure Rules that ‘except’ loan trusts from disclosure and whether that exception extends to schemes that exceed the exemptions and reliefs available. Clearly they would not fail the Tests in any event.As the HMRC does not require disclosure, they will remain unaware of the loan trusts existence unless the PR’s are made aware of the outstanding loan, by the investor/lender to the trust. I referred the matter to HMRC who pointed out that while ‘disclosure’ was not required in those circumstances , whether the value of the loan exceeded the threshold initially or later, they were able to reassess any unpaid tax avoidance should the Guidance change in the future.Where would legal responsibilities lie in the event of the HMRC changing their mind as is the case over the past few years.
Is an adviser culpable, recommending such schemes, if the HMRC so changed its view on these schemes.?

Any help would be appreciated.

Paul Desmond Doherty