I am acting for a client whose spouse has died. The Will gave a number of pecuniary legacies with residue passing to a flexible IPDI for spouse (my client). The previous representative advised to do a DOV gifting the legacies to the trustees of the IPDI and then the trustees exercising their overriding powers to give the legacies back. The 2 years are fast approaching. I feel uncomfortable with this but upon reviewing case law on this I am struggling to find out what period after the 2 years of death would be “too short” to appoint the legacies back. Kevern and Ayres seems to suggest an extra day would be ok. I feel that this would fall foul of the general anti abuse rule or would be disclosable under DOTAS but cannot find anything to support this.
I don’t believe there is any rule that would reduce the risk. The key question is whether the distributions of the “legacies” were agreed at the time of the variation and, if they were, whether they amount to consideration under s.142(3).
It all turns on the facts but if the trustee waits two years and then distributes the same sums to the same people, it does all look pre-ordained. If the agree to wait three years and then distribute the same sums to the same people… it still looks pre-ordained.
You would need to be able to show that the trustees of the will trust properly considered all the relevant matters at the appropriate time and decided that they should make these distributions. That will never not look pre-ordained if the distributions echo the original legacies.
Surely the “consideration” is or at least can be made to come out of the estate itself. So if the legacies are disclaimed/varied into the IPDI fund blatantly in return for s compensatory payment to the former legatee out of the thereby augmented IPDI fund under a PoA will consist of a second variation and no need to wait at all. The legatee must be an eligible object of the power. There is no consideration extraneous to the totality of the deceased’s estate.
There clearly is no extraneous consideration and there should be no inhibition about putting all cards face up on the table if HMRC enquire into the facts. I can only go on the facts disclosed in the OP. If some exist that I
do not know then my view might be different.
The idea that the GAAR might apply is misconceived: s142 if it applies is State-sponsored tax avoidance but lawful avoidance not evasion. Evasion is a Crime whereas avoidance is just a Non- Crime Hate Incident.
I can’t imagine what Tigger has under his bed, perhaps Kool-Aid or possibly the GAAR panel members themselves. No one goes to prison just because the GAAR is held to apply to arrangements that confer and are intended to obtain a tax advantage, are perfectly lawful, but fail the objective double reasonableness test. The counteraction measures merely result in the denial of the tax advantage in the precise manner HMRC propose, as they must, which must be just and reasonable, and which if the taxpayer disagrees can be referred to the Panel. If HMRC then implement the measures the taxpayer can appeal, to the Court if need be.
This is a public forum also read by lay people and easily accessed via a search engine. We must not terrify them with the spectre of incarceration when that is not warranted!
I deleted my post a couple of minutes after posting as I thought the was too subtle. I was right.
For the avoidance of doubt, there are no GAAR panel members under my bed. Now there might be some in the attic. I did see a print-out of s28 and a very old version of Hansard, so there might be some. But there are too many spiders up there to risk checking.
It would not surprise me if GAAR panel members inhabited an attic somewhere. Such was the unique closeted domain of former partners of mine who like the Oracle at Delphi scrutinised the the entrails of the FASB and IASB and prophesied about mystical and esoteric phenomena they called “financial statements”.
Professor Willoughby received a letter of apology from HMRC after their attempt, which when framed formed part of his estate. I am not certain what its market value was at the time.
I assume HMRC’s argument would be that the variation was a sham (or similar) with the effect that the legacies were never truly varied.
I am not aware of that ever being tested in tribunal but could of course be countered if you could show that the trust was indeed real and the trustees had not pre-agreed to exercise their dispositive powers in the way suggested.
Incidentally, I keep a large bundle of incense sticks in my loft - picked them up in Thailand circa 1998 - it keeps away all manner of HMRC officials.
I think this discussion highlights one of many facets of HMRC’s interpretation of their role and function which, if reimagined and endorsed, but particularly resourced properly, by politicians, would make every user of the tax system happier including them.
We need a properly designed structure of official rulings. These are already obtainable piecemeal as statutory clearances and, more hit and miss, by the non-statutory type. The Manuals are a rich resource, as is voluminous but generalised official guidance, all of which is never conclusive as to its likely reliability; not least because even if we are able to tease out of this variegated cornucopia an in principle official view it still needs to be applied to the specific facts of our client’s case.
Clients crave certainty. The best the most able experienced professional can offer is a guess at what HMRC will make of any proposed action. Private clients are particularly ill-served compared to corporates. For example, given the potential for disagreement about transfer pricing HMRC will engage interactively in reaching an advance pricing agreement. They even offer real time collaboration to the biggest in attempting to resolve issues that may prove contentious.
In the context of s 142 and the bogey of consideration, given the short time limit, it should be possible to disclose a detailed proposal and seek a definitive ruling. The Gotcha system wherein HMRC will only appraise selectively on a post-event basis committed acts which cannot then be undone is a process for an earlier age.
The nuts and bolts of such a facility would need design and bug anticipation by advisers and HMRC but many clients would be content with a ruling, however disappointing the outcome.
This recognises the practical realities. As regards the wide gamut of taxpayer activity HMRC are all-seeing, a party to all tax litigation actual or potential. The appellate system is so prohibitive in all its features that, de facto, the communication by HMRC in an enquiry or investigation of their firm and final position is almost invariably in practice the end of the line. Many taxpayers would prefer to secure such knowledge by an advance ruling even on a paid-for basis. Anonymous publication of rulings would enable HMRC to further ensure compliance and minimise time-wasting on both sides in a more targeted way than guidance. It would serve a similar purpose to case law without the inordinate investment into creating it that must be made by the parties to it.
My view is that it does not matter even if the trustees have been consulted and have indicated precisely what they are minded to do . An actual appointment is not prohibited consideration because its subject-matter clearly consists exclusively of funds originally comprised in the unvaried estate of the deceased.
was too subtle. I was right.