Consultations, consultations, consultations

 In Tax

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A lovely sunny morning; it’s Friday and thoughts turn to the weekend, drinks with friends; time with the family and generally achieving some work/life balance. I turn to the task of reading a number of consultation documents which affect the private client practitioner and notice the sunny morning has slipped into a rather grey and miserly afternoon; perhaps it is the thought of all those consultations!

Disclosure of IHT avoidance

To see the consultation document you need to download a copy from

This will mean that we have to  notify to HMRC all ‘arrangements’ where the ‘main benefit’ is an advantage in relation to the IHT entry charge. (An ‘advantage’ is defined elsewhere as the avoidance, reduction or deferral of a charge.) It applies only to schemes where the advantage obtained relates to the entry charge and it does not apply to the ten-yearly and exit charges on the trustees.

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The proposed exclusions from this exercise are simply to ignore the application of Business Property Relief and Agricultural Property Relief, Conditional Exemption and Exemption on a transfer into a heritage maintenance fund.

The wording is wide and yet is not supposed to bring simple procedures within its ambit. Surely though the ‘main benefit’ of each of the following arrangements is to create a trust on which there is no immediate charge to IHT:

  • Using the Nil Rate Band to get assets to this value out of the settlor’s estate and hope to survive seven years which might be particularly helpful if it brings the right to hold-over relief under s.260 TCGA 1992 for CGT in cases where there is insufficient cash to formulate the trust and no business assets
  • Creating a Transitional Serial Interest when the current life tenant exercises a power in favour of giving his surviving spouse or civil partner a serial life interest on his death
  • Setting up a pension by-pass trust to receive pension lump sum death benefits to avoid a charge to IHT on the creation of the trust; on the receipt of the pension benefits and on the death of the surviving spouse or civil partner, for example
  • On the creation of a Disabled Person’s Interest during the Settlor’s lifetime
  • The creation by Deed of Variation of a discretionary trust to use a deceased’s transferable nil rate band

Let’s hope that as a result of the consultation a better form of words can be found so that we will not have to report many of the simple approaches to trust creation which we undertake on a regular basis.

EU Commission – consultation on possible approaches to tackling cross-border IHT obstacles within the EU

In recent Finance Acts the UK has had to adjust its tax law to remove discrimatory provisions adversely affecting the free movement of capital within the EU e.g. the extension of APR to all agricultural property within the European Economic Area (EEA) rather than just limiting it to the UK, Channel Islands and the Isle of Man; or the application of charity exemption from IHT to charitable organisations in other member states.

In its consultation document which can be found at the Commission want to address other discriminatory elements of domestic legislation relating to the problem of double taxation within the EU and suggests that the member states should enter into double taxation agreements with each other to minimise the impact.

The main problem for UK deceased persons and their estates is the conflict arising from the UK’s use of domicile as the connecting factor for both succession and tax which may mean someone who is resident here for a long time becomes domiciled here and equally may mean that a person who was born here with an English domicile of origin but who has lived in France or Spain for many years may be still caught by UK IHT on his worldwide estate whilst also being caught by the IHT payable in his place of residence. The definition of domicile is peculiar to the UK and most other EU states will not use it.

Also, for most EU countries the forced heirship rules mean that their equivalent to IHT is chargeable on the first death whereas usually in the UK gifts are made to the spouse not the children on the first death and it is usually on the second death that IHT is charged so unilateral relief cannot alleviate the situation.

It is hard to see how a system could be developed to ameliorate this double taxation problem when individual states have their own historic approach to succession and tax which is unlikely to be changed and which may form the bedrock of that country’s jurisprudence.

Furnished Holiday Lettings

The previous Government’s decision to withdraw the Furnished Holiday Lettings rules from 6 April 2010 was reversed in the Coalition’s emergency Budget in June and so the rules will apply for 2010-11. However, the consultation over the summer [] will result in a change to the tax treatment from 6 April 2011. The proposals will ensure that the rules apply equally to properties in the EEA; increase the number of days that qualifying properties have to be available for and actually let out as a commercial holiday letting and change the way in which loss relief is given.

It is proposed that property must be available for commercial letting as holiday accommodation to the pubic for at least 210 days per year, up from 140 days. The minimum period over which a qualifying property is actually let to the public in the relevant period should be increased from 70 to 105 days in a year, says HMRC. Losses made in qualifying EEA furnished holiday letting businesses may only be set against the income from the same furnished holiday letting business.

HMRC wants to know if there might be regional or national variation to ‘tourist holiday periods’ which may affect the workability of the minimum periods above. One wonders whether or not HMRC will start to say that unless a person was meeting these limits then they were not ‘trading’ as a furnished holiday letting business and so no BPR for IHT.

The consultation contained some interesting data about existing tax payer populations; e.g. 65,000 taxpayers in the UK in 2008/9 had furnished holiday letting income and of those 35,000 reported losses. Of those making losses 20,000 set the loss against other income.

I wonder how many farmers who have diversified into furnished holiday letting of redundant farm cottages will be able to meet the minimum periods envisaged for the relief going forward.

IHT Excepted Estates

If you are not yet asleep with all this talk of consultations consider the latest from HMRC who would like to expand the number of cases where the excepted estates rules would apply and the full IHT 400 would not be required.

At the moment no IHT 400 is required where:

  • the gross value of the estate is below the nil rate band
  • the estate is exempt because the chargeable part of the estate is below the nil rate band and the balance passes to the spouse/civil partner or to charity
  • the deceased was a foreign domiciliary and the gross value of the UK estate is less than £150,000

It is proposed that in simple transferable nil rate band (TNRB) cases (i.e. where the first spouse/civil partner did not use his NRB and 100% is therefore transferable and where there is only one pre-deceased spouse or civil partner) then it will be possible to regard a low value estate as one which will be below £650,000 (at current rates). A new form will be created for making the TNRB claim and the IHT 205 will still be completed.

However, in cases where the spouse/civil partner or charity limit applies not only will we have to ignore BPR/APR when deciding whether a person’s gross estate is worth less than £1 million but also lifetime gifts made in the seven years prior to death which are over £3,000 per annum but on which normal expenditure out of income exemption applies. Clearly, this means that HMRC want to look closely at normal expenditure out of income cases.


The life of a lecturer is varied but reading and commenting on consultation documents is not the high point. Perhaps when I have drunk a glass of pink champagne the legal world will take on a rosier hue!

Have a great weekend.

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