Thank you, Daniel, for elucidating further on the reasons why you think the scheme will fail.
Obviously, whether a scheme actually goes to the Courts or the Special Commissioners naturally depends on how the parties view the strengths of their respective positions. I have been involved in cases which have gone to the Courts where the taxpayer's advisers thought that the taxpayer probably did not deserve to win but did and vice versa. Anyone who has been involved in the litigation process will know that there is an element of the lottery about it.
While I take your point about the purchased trust loss schemes, one (admittedly bullish) interpretation of the fact that they did not go the courts means that no precedent has been set! In relation to the commerciality or artificiality of the scheme, it seems to me that there is a real difference between someone being put into a position where they can obtain relief for a tax loss they have not in fact incurred and somebody who has effectively converted one form of asset into another which is treated more favourably for IHT purposes. But that is just my opinion and at the end of the day, neither my opinion nor, with respect, yours, will determine whether the scheme will succeed.
While I accept that there may well be issues as to whether the purchaser of a life interest can be a settlor for the purposes of section 44 IHTA 1984, my personal view is that they are at all clear cut.
I would not like anyone to gain the impression that I am an enthusiastic advocate of the scheme (I am not) or that I think that there is more than a small chance that it will work (I do not). If I was a betting man, I would ask for long odds before putting my money on a win! However, it is a certainty that sitting on your hands doing nothing is not going to get the job done as two out of the other three contributors answering this query seem to have concluded. I entirely agree with Anthony that in the final analysis it is for the client to decide whether he or she is prepared to take the risk.
UK Tax Consulting Ltd
Chartered Tax Advisers
John Kavanagh CTA