|Inheritance Tax Plans Probed|
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Wealthy families who set up trusts to reduce their inheritance tax (IHT) liabilities are about to come under greater scrutiny by HM Revenue & Customs – with accountants predicting that prosecutions for tax evasion will rise significantly.
Tax experts have warned that the “balance of power” is shifting towards the Revenue, as it seeks to collect more information on schemes used in tax planning. Insiders said that special tax “squads” are being redeployed as part of the government’s crackdown on tax evasion and avoidance, announced in September.
Blick Rothenberg, the chartered accountancy firm, expects the result to be a five-fold increase in the number of tax evasion cases brought by the government. “This is one of the most significant clampdowns in the past 30 years,” said Alan Pearce, partner at Blick Rothenberg.
Offshore accounts and schemes that are set up specifically to avoid paying tax will come under particular scrutiny. Trusts that are used for IHT planning purposes will also be monitored by the Revenue for the first time from next April, following a consultation that closes in October.
However, mainstream trusts that the Revenue is already aware of are unlikely to be affected, accountants said.
“The government is primarily concerned with finding new schemes it doesn’t know about,” said Julie Hutchison, head of estate planning at Standard Life.
Investors have ploughed tens of billions of pounds into trusts in the UK. There are currently around 250,000 trusts registered with HMRC, but Hutchison says this is just the “tip of the iceberg”, since many trusts do not have to file tax returns.
Title Research, a probate specialist, warned that more families were saving on solicitors’ fees by administering estates themselves when a family member died, which it said would cause an “almost inevitable” rise in IHT evasion cases.
The government raises £2-3bn a year from IHT. However, this figure is expected to rise, as the annual exemption limit of £325,000 has been frozen for the next four years. An economic recovery or a rise in house prices could therefore mean that more people face larger IHT bills.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Oct.8, 2010