TaxationWeb's Mark McLaughlin points out that, yet again, HMRC has avoided proper consultation, this time on new IHT rules for debts, with inevitable consequences.
HMRC recently published a document 'Treatment of Liabilities for Inheritance Tax: HMRC Response to Comments on Schedule 36 Finance Act 2013', regarding anti-avoidance provisions in respect of deductions for liabilities for Inheritance Tax purposes.
The document points out: "HMRC received a number of comments and queries about the new provisions from representative bodies, practitioners, and individuals", and adds: "This note aims to respond to many of those comments, answering and clarifying the approach taken on the issues raised."
There was no consultation on these anti-avoidance measures, which may explain why a document such as this proved necessary. Why was there no consultation?
Does HMRC regret its approach in not consulting on this legislation? Far from it. HMRC justifies its approach as follows:
"The Government’s tax consultation framework allows HMRC to adopt a different approach where following the framework could present a risk to the Exchequer.
Since the provisions in this case are designed primarily to tackle avoidance schemes, consultation would have publicised the existing schemes and could have encouraged more schemes to be set up resulting in further tax losses."
I must confess that in my 25 years plus as a tax adviser, I have never come across an IHT 'scheme' involving liabilities - have you? Be that as it may, the difficulty with legislation without consultation is that you often start with legislation which is "unclear, complex, vague or unnecessary" (to quote the document on comments received about the original legislation), and despite various tinkering to improve it, you invariably still end up with legislation which is unsatisfactory, because it is not as clear and concise as it would have been with proper consultation.
What, No GAAR?
My attention was also drawn to comments about the General Anti-Abuse Rule (GAAR). The document states:
"One commentator believed that the majority of the schemes that the proposals were trying to catch would be caught by the General Anti-Abuse Rule (GAAR). HMRC’s view is that the GAAR may not apply to a number of the schemes and arrangements, and that the GAAR is intended to complement rather than replace conventional anti-avoidance legislation or measures such as Targeted Anti-Avoidance rules (TAARs)."
Why would the GAAR not apply to 'schemes' involving liabilities for IHT purposes? Probably because such arrangements are not 'abusive'. This suggests that we can still expect lots of TAARs in the future. Anyone holding out for less tax legislation in the future should abandon hope.