GAAR Opinion notice [2020] WTLR 427

WTLR Issue: Summer 2020 #179



By a referral dated 28 October 2019 HMRC referred to the GAAR Advisory Panel arrangements made by B as executor of the estate of his late mother, A, who died in April 2015. Four months before her death A incorporated a company, funded by £700,000 of share capital. The company established a discretionary trust, to which A gifted most of the share capital in the company. The beneficial class of the trust was current and former employees, and their descendants. The only employees of the company were A, B and B’s wife.

B claimed that the gift of shares to the trust was an exempt transfer under s28 IHTA 1984. If correct, this would exempt the entire gifted sum from inheritance tax, and leave it held in a discretionary trust exempt from decennial and exit charges.

The issue for the panel was whether the carrying out of the tax arrangements was a reasonable course of action in relation to the relevant tax provisions.

Opinion of the panel:

There is a dispute whether the trust instrument satisfies s28 IHTA 1984, since it permits those connected with participants prior to death to benefit other than by way of income payments, Barker v Baxendale Walker Solicitors [2017] EWCA Civ 2066 considered. Nevertheless for the purposes of the opinion it would be assumed that s28 was complied with.

The entering into of the arrangements was not a reasonable course of action in relation to the relevant tax provisions. Although s28 is not restricted to a particular type of business nor any particular level of trading, the purpose of s28 was to facilitate the future development and succession of a business by providing benefits and incentives for its employees without imposing an IHT charge. This is reflected in the Hansard reports. The arrangements are not consistent with that purpose; the trust looks and operates like a private family investment trust, but using the camouflage of an employee benefit trust. The establishment of an investment company is not of itself abnormal or contrived. However, it is contrived and abnormal to transfer shares into a trust for the benefit of employees at a time when the business does not have and does not need employees. There was no substantive and active undertaking at the date of the gift; rather this was a ‘money box’ company of a type not intended to benefit from the legislation.

OPINION OF THE GAAR ADVISORY PANEL Subject Matter: Sidestepping a charge to Inheritance Tax. Reducing estate’s value via subscription for shares in a new company and gifting shares to an employee succession trust. Taxes: Inheritance Tax Relevant Tax Provisions: s28 Inheritance Tax Act 1984. Opinion: the entering into of the tax arrangements is not a …
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Cases Referenced

Legislation Referenced

  • Finance Act 2013, Sch 43, para 11
  • Inheritance Tax Act 1984, s28