New regulations on how DOTAS applies to Inheritance Tax Avoidance Schemes


The Government intends to introduce new regulations on how DOTAS applies to Inheritance Tax Avoidance Schemes.

The Disclosure of Tax Avoidance Schemes (DOTAS) Regulations are an important weapon available to HMRC in its fight against tax avoidance schemes. In essence, if a scheme satisfies certain conditions, any person involved in the promotion of the scheme must disclose details of the scheme to HMRC. If they do not comply with this requirement, they risk suffering substantial penalties.

Revised DOTAS Regulations have been published in relation to schemes established to avoid inheritance tax. These Regulations are set out in Statutory Instrument 2017 No. 1172 entitled ‘The Inheritance Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2017’. The rules come into force on 1 April 2018.

Under the revised rules, a scheme will be notifiable for IHT purposes if it falls within the description in Regulation 4. An arrangement will be covered by Regulation 4 ‘if it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that conditions 1 and 2 are met’.

In this respect:

Condition 1 is that the main purpose, or one of the main purposes, of the arrangement is to enable a person to obtain one or more of the following IHT advantages:

• the avoidance or reduction of an entry charge on a relevant property trust
• the avoidance or a reduction in specified IHT charges under certain sections of the IHT Act 1984 (mainly relating to relevant property trusts)
• the avoidance or a reduction in an IHT charge under the gift with reservation rules (in cases where the POAT charge does not apply)
• a reduction in a person’s taxable estate with no corresponding lifetime transfer.

Condition 2 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

It is important to note that certain arrangements are excepted from the new provisions. Most notably if they:

• implement a proposal which has been implemented by related arrangements; and
• are substantially the same as the related arrangements

In this requirement “related arrangements” are defined as arrangements which

• were entered into before 1 April 2018; and
• at the time they were entered into, accorded with established practice of which HMRC had indicated their acceptance.

These new Regulations adopt a much broader approach to what was previously proposed. In particular, there is now no specific exclusion from the DOTAS Regulations for loan trusts, discounted gift trusts and reversionary interest trusts.

However it is probably reasonable to take the view that all of these 3 types of scheme are examples of arrangements that were generally acceptable before 1 April 2018 and would have been acceptable under established HMRC practice.

This would be on the basis that HMRC are aware of these arrangements and, indeed, in the case of discounted gift trusts, have issued tables of discounted values.

It is hoped that the precise position will be clarified with HMRC in the near future.


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