Click here to read the full article: Advisers urged to review legacy files after Court of Appeal IHT ruling
Phineas’ comments have been reproduced below with kind permission.
Financial advisers have been urged to review historic inheritance tax (IHT) planning arrangements after the Court of Appeal backed taxpayers in the landmark home loan scheme case, although private client lawyers cautioned the judgment has little relevance for new planning strategies.
Following the ruling in HMRC v Elborne, a HMRC spokesperson told PA: “We note the decision and are considering our next steps.”
Private client lawyers told PA that the judgment is likely to strengthen the position of taxpayers and executors involved in disputes over legacy arrangements established during the late 1990s and early 2000s, although they stress each case will continue to turn on its individual facts.
Payne Hicks Beach private client partner Phineas Hirsch noted that the ruling rejected HMRC’s principal technical arguments based on the gifts with reservation of benefit (GROB) rules, section 103 of the Finance Act 1986 and the Ramsay principle.
A ‘rare and important taxpayer victory against HMRC’
“It is a relatively rare and important taxpayer victory against HMRC in a long-running avoidance dispute in relation to such schemes, providing appellate-level authority on the treatment of these schemes,” he said.
Hirsch said the judgment had wider implications for advisers with clients who entered historic home loan or double trust schemes.
“Advisers should review legacy files because many clients established these arrangements in the late 1990s and early 2000s and some remain under HMRC scrutiny. The decision strengthens the position of taxpayers and executors involved in disputes over arrangements that are similar to Elborne.
“However, each case will still depend on its precise facts, drafting and implementation; Elborne does not automatically validate every home loan scheme. Previous advice may need to be revisited in light of this decision.”
Relevant to historic planning rather than future IHT strategies
The ruling is primarily relevant to historic planning rather than future IHT strategies.
“It is relevant to historic or legacy planning arrangements rather than prospective planning, as subsequent anti-avoidance legislation has been implemented to prevent these arrangements from being effective,” Hirsch said.
“However, it serves as a reminder to advisers that highly tax-driven IHT planning which is artificial in any way can, and may likely, be scrutinised by HMRC several years after the planning is implemented.”
Advisers should now identify clients with historic home loan arrangements and ensure both the documentation and implementation are reviewed by specialists, according to Hirsch.
“The case highlights the importance of retaining historic records and evidence for long-term estate planning structures,” he said.
The decision provides important clarity for advisers handling older estate planning arrangements, TWM Solicitors deputy head of private client and partner Duncan Mitchell-Innes agreed.
“HMRC v Elborne is an important decision for advisers dealing with historic inheritance tax planning,” he said. “The Court of Appeal has confirmed that this particular home loan structure achieved its intended tax effect, despite HMRC relying on a range of anti-avoidance arguments.
“The judgment provides welcome clarity for families, executors and advisers dealing with legacy arrangements that were established before subsequent legislative changes curtailed the use of similar planning.”
‘Advisers should avoid making assumptions about historic arrangements’
Mitchell-Innes said advisers should avoid making assumptions about historic arrangements simply because HMRC has challenged them.
“The practical lesson is that advisers should not assume these older arrangements are ineffective simply because they have been the subject of challenge by HMRC over many years,” he said. “Where a client has historic planning of this nature, it is worth reviewing the documentation carefully and considering how the arrangement was implemented before reaching conclusions about its inheritance tax treatment.”
However, he echoed warnings that the decision should not be interpreted as reviving these planning techniques for current clients.
“The case should not be viewed as reopening the door to similar planning today, given the substantial legislative developments since these schemes were first implemented.”
On whether the ruling could alter HMRC’s approach, Hirsch said the department was likely to be more selective in pursuing comparable cases.
“HMRC is likely to be more cautious about pursuing cases that are closely aligned with Elborne, given the Court of Appeal’s rejection of its principal arguments. However, I would expect HMRC will continue to challenge arrangements where it can distinguish the facts or identify implementation defects.
“The decision is unlikely to end HMRC enquiries into all historic home loan schemes.”
For further information, please contact Phineas Hirsch. Alternatively, telephone 020 7465 4300.
