Anti-avoidance preventing gifting portion of asset equal to £3000 annual exemption

[Andrew01]

Hello Forum

I reading an arrticle on the M&G website that Portions of asset equal to the IHT annual exemptions are caught by Anti-avoidance legislation.

"Anti-avoidance
Attempts are sometimes made to exploit the annual exemption:
annual transfers of portions of an asset - the portions being equal in value to the annual exemptions
HMRC will challenge such strategies in worthwhile cases. In most cases the costs of setting up and operating these arrangements outweigh the potential tax savings."
https://www.mandg.com/wealth/adviser-services/tech-matters/iht-and-estate-planning/exemptions-and-relief/iht-annual-exemption

(1) Can anyone kindly give details on were i can find out more what this might be known as and why its prevented as i have not found much online so far.
I am suprised that giving portions of an asset is not acceptable to HMRC as you may not want sell an asset to convert to cash so you can give the proceeds away acceptably.
(2) Would one off portion of an asset also be caught or is it only regular annual transfers over a number of years?

Thank you
Andy

[Andrew01]

I have searched online and now found some more information

‘Annual transfers of part of a property are sometimes referred to as ‘salami slicing’.

The scheme falls into four broad categories:
(1) The transfer of a sum of money (IHTM14162)
(2) The transfer of a share equal in value to a sum of money (IHTM14163)
(3) Transfer of shares quantified by loss in value (IHTM14164)
(4) Property on trust for sale and proceeds split between transferor and transferee (IHTM14165)
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14161

So i am interested in scheme (2) simple gifting of part of an asset and does the legislation prevent it from being effective for IHT?
IHTM14163 says
exemption: transfer of share equal to a sum of money

The subject matter of the transfer is a share of the property equal in value to a sum of money. For example, the deed states that such share of the property as is equal in value to £3,000 is to be held for the donee and the balance for the deceased. If for example the property is worth £200,000 then a share of the property equal in value to £3,000 is 98.5%.

Where the property was the residence, and was held in the deceased’s sole name before the transfer, you need to calculate the loss to the estate. You must ask the Valuation Office (IHTM23002) to value both

the entirety with vacant possession as at the date of transfer, and
the retained share as at the date of transfer

and then to value
whatever is then the retained share in the death estate as at the date of death.


[1] So the HMRC guidance on the last two lines appears to indicate that gifting part of an asset is effective for IHT?
[2] If this true then I do not know then what the anti avoidance legislation is preventing?
[3] And if the two or more tenants in common (beneficial owners passing by will) 10% to 15% discount could be applied to the value of the property belonging to the deceased?

[AGoodman]

I can't imagine HMRC would bother challenging a scheme that reduced somebody's estate by £3,000 p.a.

It would also be overridden by the GROB rules so would not work for a property occupied by the donor (if the donee is also an occupier there are better exemptions to use).

[Andrew01]

Hello A Goodman

Thank you for your reply and mentioning that the gift would be caughlt with the GROB if the donor still lives at the property.
The senario is based on the donor nolonger living at their property sorry I did not make that clear.
So a gift of a £3000 slice of the property to the donee there is no RNRB or TRNRB avaliable.


The tenants in common discount of 10% to 15% would be the main IHT saving not (the annual exemption) £3000 slice(s).
If the donee lives at the property a 15% discount for example on a 1 million pound property.
15% discount would be a IHT saving of £150,000 x 0.4 = £60,000
And IHT saving from the slice itself £3000 x 0.4 = £1,200

So would this be caught by IHT anti-avoidance?

[Andrew01]

After doing some further reading online
The IHT anti-avoidance legislation in the M&G article which was not mentioned by name I think is Associated Opperations
For the senario I have given I believe Associated Opperations would not apply as my senario does not meet

"This can give an opportunity to avoid tax through artificially splitting an intended transfer into a number of dispositions."

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14821

As the sole property owners first gift transfer (eg £3000 slice) reduces the property value due to a tenants in common reduction of 10% to 15% and the £3000.
If the same owner made any subsequent gift transfers (of the property) these transfers would not artificially reduce the property any further.

So as long as I have not overlooked any other relavant IHT anti-avoidance legislation?
And a GROB does not apply a gift of small slice of their property would be successful achieve what is intended.

[AGoodman]

Bear in mind that if donor gifts a small slice that would be worth £3,000 on a proportionate basis but the gift reduces donor's estate by £60,000, that is a transfer of value of £60,000, not £3,000. The annual exemption becomes irrelevant.

The measure is not the value received but the value by which the donor's estate is reduced.

[Andrew01]

Thank you AGoodman for explaining

That I had over looked the loss to the donors estate IHT anti-avoidance, for example with a failed PET
IHTM04054 - Lifetime transfers: the loss to the transferor’s estate
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04054

I believe this legislation came in to force 1991
https://www.legislation.gov.uk/ukpga/1984/51/section/3/1991-02-01

[AGoodman]

1984. it's just that legislation.gov.uk always shows 1991 as the earliest possible date.