IHT - Anti-Avoidance Flashcards
(16 cards)
What is the Ramsay Principle?
judicial approach where courts apply a purposive interpretation to tax legislation, focusing on the substance over the form of a transaction. It is similar to the mischief rule in statutory interpretation and allows HMRC to challenge artificial arrangements that exploit tax loopholes.
How does the Ramsay Principle differ from legislative anti-avoidance rules?
The Ramsay Principle is a judicial doctrine, whereas legislative anti-avoidance rules are statutory measures enacted to prevent specific types of avoidance. In practice, both are now used together to counter tax avoidance more effectively.
What is the distinction between tax avoidance, aggressive tax avoidance, and tax evasion?
- Tax avoidance / tax planning: Lawful arrangement of affairs to reduce tax liability.
- Aggressive tax avoidance: Complex or artificial schemes exploiting loopholes, technically legal but against the spirit of the law.
- Tax evasion: Unlawful concealment or misrepresentation of income or assets to avoid tax liability.
When can loans be deducted for IHT purposes?
Loans can be deducted when calculating the chargeable value of a deceased’s estate or lifetime transfer. However, deductions are restricted if loans were used to:
- Acquire, maintain or enhance assets qualifying for BPR (or agricultural/woodland relief).
- Acquire, maintain or enhance excluded property.
- Fund a qualifying foreign currency account.
- Are unpaid at death and not repaid from the estate.
How are loans for BPR assets treated under IHT?
The loan must first be set against the value of the BPR-qualifying asset, reducing the available relief. Any excess loan value can then be deducted from the rest of the estate.
What happens if the loan was for a non-relievable asset (e.g., home improvements)?
The loan is deducted from the estate generally, without affecting the value of assets qualifying for BPR, meaning the BPR is applied to the full qualifying value.
Can loans that are not repaid be deducted from the estate for IHT purposes?
Only if the loan is actually repaid from the estate. Loans to family, trusts, or related companies as part of avoidance schemes are scrutinised and not deductible unless repaid.
What is the purpose of the GROB rules?
To prevent individuals from avoiding IHT by giving away property but retaining a benefit, such that the property is still effectively part of their estate.
When do the GROB rules apply?
When:
- The donee does not assume bona fide possession of the property at or before the start of the relevant period, or
- The donor retains benefit from the property during the relevant period (7 years before death).
What is meant by ‘bona fide possession’ for GROB purposes?
The donee must:
- Obtain a vested beneficial interest;
- Have actual enjoyment (e.g., occupation or receipt of income); and
- Assume this at the start of the relevant period.
What is the ‘exclusion of the donor’ requirement in GROB?
The donor must be entirely or virtually excluded from benefit. Social visits or de minimis use may be allowed, but continued rent-free occupation would trigger GROB.
What happens if a GROB subsists at death?
The property is treated as part of the donor’s estate and taxed at its date-of-death value.
What happens if the GROB ceases before death?
A PET is deemed to occur when the benefit ceases. This is chargeable if the donor dies within 7 years, but it does not benefit from the annual exemption.
What are the CGT consequences of making a GROB?
The donee’s acquisition cost is the value at the date of gift, not the date of death. The donor may have to pay CGT (unless exempt), and the donee may lose the CGT uplift available on death.
What is DOTAS?
A reporting regime requiring promoters of certain arrangements to disclose them to HMRC, so that potential avoidance can be scrutinised early.
When is an IHT arrangement notifiable under DOTAS?
If it aims to avoid GROB charges, reduce estate value without a chargeable transfer, or avoid IHT via contrived/abnormal steps.
