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<b>Opinion:</b> How Gordon upset everybody. By Simon Sweetman

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10th Apr 2006
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Quite an achievement, really. The chancellor has managed to upset both accountants and solicitors in a single budget with two items that the national press more or less completely overlooked. Though mind you, once again they told us we had a "nothing happened" budget and we still get 489 pages of the Finance Bill.

And in both cases it's not the legislation (or indeed the intention to legislate) that's the problem so much as the manner of it, and in particular the absence of consultation.

Patrick Carter may have exceeded his brief, but in the long run accountants cannot be surprised that a shortening of the time limit for the submission of tax returns was on the agenda, nor that this should be associated with online filing. It means some reorganisation, but happily it may mean the end of the somewhat condescending view that the self employed are so feckless they can't even put everything in a carrier bag until six months after the end of the year. Since small businesses in other countries appear to cope, we have to ask whether the problem is not them but their professional advisers. When Mr Byte the computer consultant comes in for the first time, you just have to tell him that you expect him to get his books to you within a month of his year end and he won't know any different. Bad habits that built up in the era of previous year assessments have persisted for far too long.

But Gordon was not content with winding up the accountants, he decided to wind up the solicitors as well. I have never understood why accumulation and maintenance trusts should have a special privileged status anyway. The reaction to the announcement would have been appropriate if the chancellor had announced the immediate compulsory donation of all trust property to the Labour party : as it was it might seem just a trifle over the top. This was followed by the wild exaggeration so common in comments on IHT. Many solicitors seem very quick to move from "many of the people who come to see me to talk about IHT are interested in trusts" to "everybody is interested in trusts" to "everybody is affected if the taxation of trusts changes". It must be said here, though, that had the measures to be taken been announced rather more clearly, there would have been less panic about retrospective legislation and the effect on insurance policies. So (once again) the air is full of the sound of professionals weeping and wailing and gnashing their teeth. But do they have a point? Yes, they do, even if it is not the one they think they have. HMRC has been very ready to talk the talk of consultation, and in many areas has done it. I had been worried that some new powers for HMRC would be hurled into the Finance Bill "just to help us trial a few things" before the consultation had finished; but it didn't happen, and we have a consultation document on the subject.

So why not consult here? HMRC could have made it clear that it expected Lord Carter's new time limits to come in, but could have consulted on the timetable. It seems particularly perverse to introduce new rules about trusts just after a consultation on changing the tax treatment for trusts which covered many things ' but not changing the IHT rules. HMRC talks about a new relationship with advisers as well as with business, and about establishing mutual trust. That is not done by picking and choosing the things you consult about, any more than by picking and choosing who you feel like consulting with. If we are into a new era of partnership, then the default position must be to do things as openly and transparently as possible. When I complete my tax return, HMRC expects me to be open and transparent with it: that should apply the other way as well. I believe that the position ought to be that all new tax measures or significant changes ought to be put out for consultation unless HMRC can show good reasons ' a real risk of serious loss to the Exchequer, or unfairness between groups of taxpayers ' why they should not be.

Perhaps that way we could avoid the passing of rubbish legislation (IR35, pre-owned assets) and we could all get used to behaving like adults.

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By Paul Soper
12th Apr 2006 15:46

Hmmmm
Quote: "I have never understood why accumulation and maintenance trusts should have a special privileged status anyway."

Lets put it this way shall we - A wants to give assets to his children in his will but is worried that he will die when they are too young so he sets up a trust which will hold the assets until they are old enough to enjoy the assets properly and in the mean time the income can be used, if needed to support the children, pay school fees etc.

The capital passing into the settlement is treated as any other and is taxed to IHT in full at that time. If the children were, say, 30 they have the m oney immediately with no further tax to pay. As the children aren't and the money must be held for them until they are old enough to use it sensibly Gordon now proposes to tax them once every 10 years in addition and an exit charge when the assets pass to them. He proposes an exception if they get in quick and change the age of absolute inheritance to 18 - but how sensible is that?

B decides to do the same but hasn't died yet - again if the kids were 30 he could give it to them immediately but they aren't so again he uses and A&M settlement because of the flexibility it offers. If he gave it to them immediately it would be a PET, and if he lives for 7 years tax free. Creating a lifetime A&M settlement was also a PET with the same consequences. Now he will have to pay a heavy price to set up a perfectly sensible device.

This is simply a wealth tax on trusts, creating additional liabilities rather than simply leaving a status quo situation. No comment, no justification, no reasoning (and no reason) - I don't think the revenue or Gordon (although I am sure he had little to do with this other than as a gesture, he'd probably been reading Dennis Healey's autobiography and decided to see if he could queeze the rich until he made the pips squeak!) have thought this one through at all.

Other than that all the comments made here and well made and deserve to be applauded!

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By User deleted
20th Apr 2006 11:58

Nice theory!
"When Mr Byte the computer consultant comes in for the first time, you just have to tell him that you expect him to get his books to you within a month of his year end and he won't know any different."

This is nice in theory - if only it actually worked! There is a big assumption that accountants don't already do this - believe it or not I don't actually like being under the pressures that I am in January and DO tell all clients this already!

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By AnonymousUser
10th Apr 2006 19:56

change of timing
Bring forward the date of filing and "hey presto" an upsurge in estimated figures to avoid penalties.
I think Gordon has realised that he will never become PM so get ready for some more upset.

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