Lords Slam Lack Of Consultation On Trust Tax Changes

by Jason Gorringe, Tax-News.com, London

27 June 2006

In a report on this year’s Finance Bill, which is currently before the Commons, a House of Lords select committee last week criticised the Government for its lack of consultation on changes to the way that family trusts are subjected to inheritance tax, and for not making its objectives sufficiently clear.

The House of Lords Economic Affairs Committee examined in depth three aspects of this year’s Finance Bill – further measures to counter avoidance of direct tax, new measures to deal with Missing Trader Intra-Community VAT fraud, and changes to the way that family trusts are subjected to inheritance tax.

In its report, published on Friday, the committee expressed general support for the Government’s actions to counter direct tax avoidance and VAT fraud, but was critical of the way in which the new inheritance tax measures have been handled. It did not accept the Government’s argument that consultation on these measures could not have taken place without inviting forestalling.

The Committee also drew attention to the impact which the new measures, designed to close tax loopholes through the use of trusts, could have on trusts which are used for ordinary family purposes with no tax avoidance motive. It additionally criticised the Government’s lack of transparency in making clear the intentions behind the new rules.

Lord Wakeham, Chairman of the Committee, said:

“We welcome the follow-up action in the Finance Bill to close direct tax loopholes. We note that previous steps in this direction have already produced something of a behavioural shift away from the widespread use of artificial avoidance schemes. And we support the further action proposed to counter VAT fraud."

“We welcome also the fact that the Government has introduced a large number of amendments designed to deal with some of the criticisms of its measures on the taxation of trusts."

“However, a lot of people have been needlessly worried by the original proposals, and there might have been little need for amendments if the Government, before introducing the measures, had consulted on them in such a way as to make clear its objectives in countering tax avoidance.

“This is not in our view the way in which tax changes should be made”

Recommended