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STEP Response to the HMRC Consultation

Strengthening the Tax Avoidance Disclosure Regimes

published on 31 July 2014


STEP is the worldwide professional association for practitioners dealing with family inheritance and succession planning. STEP members help families plan for their futures, specialising in a wide range of activities, from drafting a relatively simple will to more complex issues surrounding international families, protection of the vulnerable, family businesses and philanthropic giving. STEP helps to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members.

STEP has over 19,000 members across 95 jurisdictions from a broad range of professional backgrounds, including lawyers, accountants, trust specialists and other practitioners in this area. In the UK STEP has almost 7000 members and an extensive programme of training and continuous professional development.

STEP welcomes this opportunity to comment on the consultation regarding strengthening the tax avoidance disclosure regimes.

Consultation response

STEP believes that a fair tax system must include effective measures to counteract abuse and recognises that a small number of firms and individuals have an unacceptable approach to the promotion of abusive avoidance schemes. We question whether the regime needs to be amended again when HMRC’s existing powers could be used to target the small number of promoters still selling abusive schemes. Those promoters who do not comply with their existing obligations under DOTAS are unlikely to comply with the obligations under the proposed regime.

STEP has significant concerns regarding the current proposals in relation to inheritance tax and the potentially serious consequences that they could have for provision made for families on death. It is very important that the interests of the vast majority are not prejudiced by a regime introduced to catch a few people.

Our comments in this response are confined to the proposed extension of the DOTAS rules in relation to inheritance tax. We leave it to others to comment on the other aspects to the consultation.

Main points

We have a number of concerns regarding the extension of the DOTAS rules to areas of inheritance tax planning not currently covered. Briefly these are that:

  • the legislation should be clear so that there is little or no need to rely on guidance,
  • the difference between wills and other tax planning steps needs to be taken into account,
  • there should be no disincentive to executing a properly drafted will which adequately provides for the testator’s family,
  • in order to make the regime workable, grandfathering should be maintained.

Need to rely on guidance

We continue to be of the view that DOTAS should not be regarded as a long term substitute for properly drafted tax legislation that has been subject to full Parliamentary scrutiny. The inheritance tax regime is very complicated and already contains complex anti-avoidance provisions including the gifts with reservation rules,the FA 2013 debt rules and the pre-owned assets tax.

Although guidance has its place, recent events have made it clear that taxpayers cannot rely on guidance as it is likely to be changed or withdrawn at any time with the result that arrangements already in place have to be reviewed and, in some cases,steps taken to unwind an arrangement giving rise to uncertainty and added costs.

HMRC have been aware of a number of tax planning arrangements which have been marketed widely for a number of years but have not used their existing powers to litigate arrangements which they feel do not work. Instead of introducing a new set of powers, we feel that HMRC should commit resources to taking forward these cases so that the courts can give clarity.


It is also not at all clear from the consultation document that the difference between wills and other documents and arrangements has been properly understood. Although a will is a legal document, its provisions only come into effect at the date of death. Until death, individuals may change their will as they wish[1]. Where a will contains trust wording, the trust itself only comes into effect on death and not before that. We therefore do not agree with the idea that a will or codicil should have to be reported at the time of execution as its provisions have no effect at that time and can be freely changed or revoked until death. The requirement to report a will/codicil on the basis that it is a ‘transaction’ by reference to the date of execution is not appropriate.

The proposed extension of DOTAS to all aspects of inheritance tax planning may well put many people off writing a will. It is very important that no disincentives or negative connotations are created with respect to executing a will which has been professionally drafted to take into account the individual’s wishes and family circumstances.

Although the intestacy rules have recently been amended to make better provision for surviving spouses and civil partners, the rules are a fall back and should not replace a well drafted will. In addition, the intestacy rules do not make any provision for the survivor of a cohabiting couple. We feel that if people are put off writing a will for fear that they may be considered to be avoiding tax, many families will not be appropriately provided for and will suffer hardship.

It must be stressed that even taxpayers who would never consider entering into a tax avoidance scheme, will want to ensure that their will provides for their family in the most tax efficient way possible so as to provide as best they can for their families. Due to the complexity of the inheritance tax regime, an inappropriately drafted will can lead to a higher inheritance tax liability arising on death than need otherwise have been the case due for example to the grossing up rules or failure to use the s.18 IHTA 1984 exemption or the nil rate band.

Inheritance tax - arrangements to avoid or reduce an immediate charge to inheritance tax

As present the DOTAS rules only apply to schemes which aim to avoid the inheritance tax relevant property entry charge which arises when assets/cash is settled on most trusts.

As we have mentioned previously, the desire of many people to settle assets into trust for their issue is not prompted by tax avoidance but reflects their very natural wish to ensure that children do not have unfettered control over assets of significant value until they reach a responsible age. Many clients cannot see any logic in the idea that lifetime gifts into trust are significantly more severely taxed than lifetime gifts to individuals.

If HMRC wish to widen the scope of the existing rules to cover other forms of lifetime arrangements then the rules will need to be clear about what arrangements are considered to fall outside the normal and legitimate use of reliefs and exemptions.

Inheritance tax – arrangements intended to reduce or avoid tax on death

As mentioned above we do not think that it is appropriate to require reporting of the execution of wills or codicils.

Consideration should be given to the fact that planning to reduce the tax charge on death of itself contains an element of uncertainty in that, unless it is undertaken when death is imminent, there is no certainty that it will be effective in any case relying as it does on the nature and scope of the rules at the time of death. That being the case, the DOTAS regime rules will need to make it clear what type of schemes it is designed to catch.

Inheritance tax – targeted hallmarks

In practice a will is often a fairly complex document drafted using a precedent as a starting point which is then adapted to meet the client’s needs and wishes. There are however, a number of fairly standard provisions which will appear in most wills and it needs to be made clear in the legislation that this is not the sort of standardised documentation which it is intended to catch.

The consultation document states any new disclosure requirements applicable to inheritance tax would remain tightly targeted, describe the avoidance that HMRC is interested in and not catch planning which involves the straightforward use of reliefs and exemptions. However, given the breadth of the proposals, unless the legislation is very specific about the arrangements that it is designed to catch, we are concerned that much time and effort will be expended by practitioners (giving rise to increased costs to their clients) in establishing whether or not the strategy needs to be reported or not even though that strategy may have been used for several years in relation to other clients. If this is not the case then it is likely that there will be needless reporting of fairly standard planning arrangements. In order to make sure that the proposed extension of the DOTAS catches the schemes it is intended to catch and not relatively straight forward planning, we feel that it is imperative that a list of common inheritance tax planning ideas/strategies which it is not intended should be reported is contained in the legislation or at least published in guidance and kept up to date by HMRC.

In order to be sure that the hallmark is appropriately targeted, HMRC need to provide more information about the types of schemes and transactions they are concerned about.


The current HMRC guidance on inheritance tax and DOTAS states, at para 13.6, that one of the aims of the extension of the scheme to inheritance tax was to restrict disclosure to schemes which were new or innovative. A list of grandfathered schemes and schemes not within the extension is set out in the guidance. This has been very helpful and has given comfort to those who are undertaking standard planning involving the transfer of assets into trust.

Given that it is proposed that the regime should be extended to all aspect of inheritance tax planning, it will be even more important for there to be grandfathering and a list of arrangements which are grandfathered or not within the regime published. If this is not provided then it is very likely that most advisers will take the cautious route and report even the standard use of reliefs and exemptions ‘just in case’ leading to increased administration and costs for both clients and HMRC withno increase in tax revenue.

Responses to specific questions

Q1 - Will removing grandfathering in this way deliver greater consistency in the application of this hallmark?

We consider that removing grandfathering in relation to the Standardised Tax Product hallmark will give rise to more reporting but generally this may be in relation to schemes which HMRC have been aware of for some time.

Q2 – Do you foresee any issues with removing grandfathering prospectively for schemes made available or implemented from a certain date?

Advisers will now need to review all standard planning techniques to ensure that they will not need to be reported now.

Q3 – Will recasting the hallmark to consider the overall product being offered rather than the underlying documentation and scheme structure ensure greater consistency in the application of this hallmark?

We agree that having to consider the overall product rather than the documentation is likely to give rise to more arrangements being reported. However, whether or not this will ensure greater consistency will depend on the drafting of the legislation and how those rules are interpreted by scheme promoters.

Q4 – Do you agree that widening the main purpose test to “the, or one of the, main purposes” will help ensure the policy objective is met?


Q5 - Would including additional characteristics such as the existence of a fighting fund in this hallmark ensure disclosure of all schemes which include such elements or would a separate hallmark be a better way to achieve this?

It should ensure that all such schemes will be reported if there is a requirement or strong recommendation that clients contribute to it at the outset. However, it will be important that there is no disincentive to the creation of fighting funds more generally. These are often set up after an arrangement has been challenged by HMRC and there are a number of taxpayers in similar circumstances who have an interest in the final decision where the general consensus is that the HMRC view is not correct.

Q6 – Do you think that a combination of the new draft Financial Products hallmark and the revisions proposed to the loss hallmark will result in more tax avoidance schemes being disclosable without adversely impacting on normal business activity?

We leave this for others to comment on.

Q7 – To what extent do the proposals strike the right balance between ensuring that IHT avoidance is brought within DOTAS but that legitimate estate planning is not disclosable? If not, how might this balance be best achieved?

We note that at para 2.38 HMRC comment that they are aware of a variety of schemes which seek to avoid inheritance tax which would not be reportable under the current hall mark and that the potential loss of tax may be substantial. The current regime only covers arrangements which avoid the relevant property entry charge and so this is not surprising. If HMRC are aware of schemes that they consider do not work or are considered abusive then they should deal with these schemes using their current powers. No figures are given for the potential loss of tax and unless the amounts involved are substantial we consider that the adverse effect of the introduction of a wide reporting regime on legitimate estate planning may well outweigh the increase in tax revenue.

There will be particular issues regarding the date at which an arrangement can be said to be ‘newly implemented’ where it includes the provisions set out in an individual’s will. As mentioned above a will can be revoked at anytime before death and so will the time of implementation be the date that the will is executed or the last moment at which it could have been revoked but was not? We do not think that executing a will should have to be reported.

Q8 – Does the proposed approach ensure so far as possible that legitimate claiming of reliefs and exemptions does not have to be disclosed? If not, what alternative proposals would achieve that aim?

The legislation will need to be carefully drafted so that it is clear when the use of reliefs and exemptions will not be considered legitimate.

STEP UK Technical Committee

23 October 2014


[1] Assuming that they have capacity and are not the survivor of a couple who have executed mutual wills.