The Association of International Life Offices (AILO) has lauded the impact of its discussions about the UK Disclosure of Tax Avoidance Schemes (DOTAS) regulations with HMRC, with a new form of ‘grandfathering’ relating to Inheritance Tax (IHT) introduced, alongside the recent disclosure rule changes.
The new DOTAS rules – an important part of HMRC’s armoury in countering what it sees as aggressive tax avoidance – cover all direct taxes, and require promoters of a scheme or product bearing one or more ‘hallmarks’ to register it with HMRC, who may issue it a scheme reference number (SRN). Any taxpayer who uses the scheme also needs to register with HMRC.
Since 2015, HMRC has been consulting on a proposed expansion of the DOTAS hallmarks in relation to IHT, which would alter arrangements brought into DOTAS including those designed to mitigate IHT.
To date, AILO, along with other industry bodies, has managed to keep commonly used IHT planning products marketed by insurers – including Loan Trusts, Reversionary Interest Trusts and Discounted Gift Trusts – out of DOTAS.
1 April IHT rule change
On 1 April 2018 the Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2017 came into effect.
These regulations contain new hallmarks that are broad enough to cover insurance based products. Following consultation, AILO said that it has secured a limited form of ‘grandfathering’. The regulations state that certain arrangements are excepted from the new provisions if they: implement a proposal which has been implemented by related arrangements; and are substantially the same as the related arrangements.
“Related arrangements” are those that were entered into before 1 April 2018; and at the time they were entered into, accorded with established practice of which HMRC had indicated its acceptance.
Commenting on the outcome of AILO’s negotiations with HMRD, Bob Pain, AILO chairman, said: “This is an excellent example of how AILO supports its members and the wider industry. By discussing the impact of the proposed new regulations at a granular level, AILO has helped to avoid the unintended consequences that could otherwise have affected existing, legitimate products.”
The AILO Taxation Committee said that it has reviewed, and given feedback on, the draft guidance to ensure that existing products are excluded from the new regulations. It is important to note, however, that where a new scheme is introduced, or an existing scheme is amended, it is likely that it would be, at the very least, notifiable under DOTAS.
By way of example: Company A has marketed a Discounted Gift Trust for several years, and has customers who have used the product. It is a scheme of the type that has been covered by previously published HMRC guidance. This scheme will be grandfathered and is not notifiable.
Company B, on the other hand, has never marketed such a scheme, but now proposes to launch one, with a proposed launch date of 1 June 2018. As this is a new arrangement, Company B must notify HMRC under the new DOTAS provisions, the AILO statement concluded.