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UK Plays Down IHT Crackdown Risks; Law Firm Warns Over Avoidance Schemes

Tom Burroughes

12 August 2014

It may seem a few weeks away, but the onset of autumn in the UK usually sees an increase in media speculation about the horrible things governments intend to do to “crack down” on forms of tax avoidance as the parliamentary season looms. A media report has raised alarms of increasingly aggressive moves against taxpayers, while a law firm has also highlighted risks around avoidance schemes.

Yesterday, the Daily Telegraph newspaper reported that the UK coalition government intends to stop wealthy people “benefiting from complicated schemes that allow them to dramatically reduce the amount they will owe after their death”. The report said that “under plans put out for consultation, HM Revenue & Customs would have powers to subject people minimising inheritance tax to “accelerated payment” laws, meaning they would be forced to pay up front if officials suspect them of using new schemes to avoid tax”. It went on to note that some experts fear that taxpayers will be treated as “guilty until proven innocent”.

When WealthBriefing asked HM Treasury, the department responsible for authorising any such move by HMRC, about the story, a spokesperson said: “The government will not ask be asking taxpayers to make an accelerated payment of inheritance tax - which is due on death - during their lifetime. As part of the ongoing consultation, we are seeking views on tackling inheritance tax avoidance schemes and no final decisions have been taken”.

"The proposals would only affect a small minority of wealthy individuals actively seeking to avoid inheritance tax. Accelerated payments will not apply more widely to IHT trust charge changes, unless the trust arrangement is part of a tax avoidance scheme disclosed under DOTAS,” the spokesperson said, adding: “Under inheritance tax rules a couple do not pay tax on the first £650,000 ($1.091 million) of their estate on death.”

Tax avoidance demands
Law firm Winckworth Sherwood said that 33,000 people are at risk as tax avoidance demands hit doormats this month. It said individuals that have taken part in one or more of the 800 tax avoidance schemes listed by HM Revenue & Customs, the tax authority, in July 2014 can expect to receive demands this month for prompt payment.

Using new powers introduced through the Finance Act 2014, HMRC will start to issue Follower Notices and Accelerated Payment Notices to those it believes have taken part in deliberate tax avoidance schemes, giving people just 90 days to settle demands that could be in excess of £1 million.

“This is the most significant of the many clampdowns by HMRC on those taxpayers that have engaged in tax avoidance schemes and practices.  Individuals will be naturally concerned when they receive these demands and it is entirely possible that they will not be able to afford to pay straightaway and face the threat of bankruptcy,” Simon Newsham, a partner in the tax team at the law firm, said.

The firm explained that a Follower Notice can be issued by HMRC where it believes there has been a court or tribunal decision in a case that is similar to the tax treatment that has been claimed by the taxpayer.  Where a Follower Notice has been issued, the taxpayer will be required to amend their tax return or claim or withdraw any appeal against an HMRC closure notice, assessment or determination.

Accelerated Payment Notices are issued where a taxpayer has entered into a tax avoidance arrangement that has been notified to HMRC under the disclosure of tax avoidance scheme rules (DOTAS) or where a counteraction has taken place under the general anti-avoidance rules (GAAR).  

“We expect to see a raft of claims from individual receiving these notices against their advisors who may have encouraged them to participate in these schemes without fully explaining or understanding the risks involved,” Newsham said.

The profile of such schemes has risen in recent years, with public figures such as stand-up comedian Jimmy Carr, among others, being pilloried for using forms of tax avoidance. The issue also highlights debate over what is the dividing line between tax evasion, which is a criminal offence under English law, and avoidance, which typically is not. Some figures in the wealth management industry have warned that legitimate tax planning has been rendered unworkable.