Expert Suggests That UK's IHT Laws Can Still Be Circumvented

by Robin Pilgrim, LawAndTax-News.com, London

02 July 2003

Speaking to the Butterworths legal publishing service this week, tax expert and private client partner at Gordon Dadds, John Goodchild suggested that despite the recent closing of the 'gifts with reservation' IHT loophole by the UK's Inland Revenue, more complex inheritance tax avoidance schemes may still be within the law.

Observing that families with existing trusts holding homes and financial assets should be safe from the anti-avoidance provisions contained within the Finance Bill, as they only apply to such arrangements established after June 20, he went on to explain that:

'My view is the anti-avoidance clause will catch common or garden Eversden arrangements. However, if you were determined to do one, you might still be able to do it. The clause focuses on gifts which result in property becoming comprised in a settlement - the gift being a gift to the spouse.'

'In my view, you could transfer the asset concerned to a trust in which you yourself take an initial life interest but which contained an overriding power of appointment. The trustees could then subsequently appoint away from you, the donor, a life interest in favour of your spouse. It adds an extra stage to the process but I think you would then not be caught by the new clause.'

However, he concluded that:

'I don't think Eversden was really any use for the family home anyway. I would guess that 90% of married couples own their main residences 50/50 and if you do, I don't think you get into Eversden territory...So, given the legal and practical difficulties, I think Eversden never amounted to the gaping hole in the reservation of benefit legislation that the Revenue claimed.'

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