Earlier this week, a number of mainstream UK media outlets suggested the Revenue was looking to send so-called accelerated payment notices to people looking to mitigate inheritance tax using a trust, before they had died.
While this is true to some extent, a spokesperson from HMRC pointed out the notices would only ever be sent to those using tax avoidance schemes registered under the Revenue’s Disclosure of Tax Avoidance Scheme (DOTAS) and, even in those circumstances, if the avoidance relates to IHT on an estate at death, it will only come into effect after death.
The spokesperson added: “The Government is not making any changes to the collection mechanism for inheritance tax, which is payable after death. In no circumstances is the Government seeking payment of these charges during the taxpayer’s lifetime. The only IHT charges currently payable before death relate to trusts. This is an established feature of the IHT and trusts regime and is not changing.
“The proposals would only affect a small minority of wealthy individuals actively seeking to avoid inheritance tax through the use of an avoidance scheme that has been disclosed under DOTAS.”
The claims made by the newspapers were based on two consultation documents released earlier this summer – “Inheritance tax: A fairer way of calculating trust charges” (open until 29 August) and “Strengthening the Tax Avoidance Disclosure Regimes” (Open until 23 October).
Paragraph 2.58 of the DOTAS consultation states: “For IHT chargeable following death no Accelerated Payment notice could be issued until after the person had died and an IHT account had been delivered, irrespective of when the scheme was made available by the promoter or implemented by the user.”
Accelerated payment notices are issued when a taxpayer has entered into a tax avoidance arrangement that has been notified to HMRC under the disclosure of tax avoidance scheme rules.
Those who receive an accelerated payment notice will have to pay the tax due within 90 days.
While not as aggressive as some reports suggest, the IHT consultation does propose the introduction of a number of restrictions on the use of trusts to mitigate IHT.
These include introducing lifetime charges on:
- Transfers of property (cash etc) into a trust that exceed the nil-rate band (£325,000) in a seven year period. [Only chargeable property)
- 10 yearly charges based on the value of property in the trust
- Exit charges – where property leaves a trust
