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Opinion: Pre-owned assets and 'catch all' tax law

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8th Mar 2005
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Ian Maston, a solicitor and director of estate planning at Chiltern, gives his initial reaction to Monday's announcement of changes, to be made in regulations, to the pre-owned assets charge due to come into effect on 6 April.

"The confirmation that those involved in commercial equity release schemes will escape a pre-owned assets charge is, of course, welcome news.

However, the paymaster general's comments in relation to inter-family sales merely add another levely of confusing complexity to the already convoluted pre-owned assets rules.

The position would now appear to be that an inter-family "arm's length" sale of a whole interest in a property will be outside the rules as long as it is done by a transaction such as might be expected to be made at arm's length between persons not connected with each other.

A similar transaction involving a sale of part will also be outside the rules if made before 7 March 2005 but will be within the rules if done after that date.

Those of us involved in advising other professionals on estate planning issues have long scratched our heads as to why an inter-family sale of part for full consideration should in any circumstances be caught by the pre-owned assets rules.

When pressed on this point during the passage of last year's Finance Bill through parliament no coherent answer was forthcoming from the government.

Clearly someone at the Revenue thinks there is a potential for future inheritance tax avoidance if such sales are allowed to go unchecked but no one wants to say what that is for fear of providing ideas!

In a rare - in the context of pre-owned assets - concession to fairness, the decision has been made to exempt such transfers made before 7 March 2005, but going forward this government's depressingly common strategy of introducing "catch all" anti-avoidance legislation to tackle obscure avoidance has been confirmed.

What is clear from all this, however, is that government is perhaps a little more concerned about the retrospective nature of this legislation than it has, to date, admitted.

Until now the line has been that this legislation - in imposing an income tax charge only from 6 April 2005 - is "retroactive" but not retrospective because the charge is to be applied to only current circumstances (ie. if there is no occupation after 5 April 2005, there is no charge).

In conceding that it would be (presumably) unfair to impose a charge on inter-family "full consideration" part sales prior to 7 March 2005 because ' ... owners ... are unlikely, given the law as it stood at the time, to have chosen that approach primarily for tax avoidance purposes', the government is tacitly admitting that this is a retrospective inheritance tax planning penalty.

This perhaps leaves the door ajar for others (caught by equally unfair parts of the legislation) to argue more strongly that they should be given an exemption from charge."

Ian Maston

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By AnonymousUser
09th Mar 2005 14:17

Catch all legislation is necessarily bad law
While I do not know enough about the subject matter to comment specifically, I do have a general grouse.

Anti-avoidance legislation should be targeted so as to prevent abuse of the intention of the legislation without influencing genuine commercial transactions to which the law was not intended to apply.

I have all to often had to advise on restructuring straight forward deals - not to avoid a fair tax charge, but to avoid the possibility of the imposition of a penal provision intended for a quite different situation. This has lead to increased costs and inconvenience to my clients. It is this that is wrong with the poorly (or cynically?) drafted legislation we have seen so much of recently.

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Richard Murphy
By Richard Murphy
09th Mar 2005 09:18

Depressing, but not for the reasons given
I note Ian Maston says "this government's depressingly common strategy of introducing "catch all" anti-avoidance legislation to tackle obscure avoidance has been confirmed."

I note from his firm's web site that they say "Specialist advice and sensible planning can play a vital role in helping reduce or even eliminate the inheritance tax liability on your estate. Our estate planning and trusts team takes a strategic approach to exploit tax saving opportunities while steering clear of anti-avoidance legislation - offering valuable peace of mind for you, your family and dependents."

Is it surprising he's depressed? He wants to exploit tax rules and knows that strong anti avoidance legisltaion makes that commercially impossible.

Which is very welcome news for all who want to practice tax within the spirit of the law, because that's exactly what strong catch all anti avoidance provisions require others to do, and that means a level playing field for all tax payers. Anyone who believes in social justice must welcome that.

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