UK Government Ready To Close Inheritance Tax Loophole

by Robert Lee, Tax-News.com, London

18 February 2004

Recent reports would appear to confirm that the UK Treasury will impose income tax on homeowners who have established trust schemes to escape the inheritance tax net.

So-called ‘home-loan schemes’ help taxpayers to circumvent the Revenue’s ‘gifts with reservation’ rules and avoid the inheritance tax net by allowing them to sell their house to a trust in return for an IOU. This IOU is then passed on to the heirs of the house via another trust, whilst the taxpayer continues to dwell there.

It has been known for some time that the government is unhappy at the present situation, and in December last year a consultation paper was launched on the issues surrounding ‘pre-owned’ assets. It is thought that income tax will be levied on those enjoying a material benefit from a pre-owned asset from April 5.

The tax profession has unsurprisingly attacked the government’s intentions, arguing that they will hit mainly elderly sections of the population, who will be in breach of the law if they do not file a tax return.

It has also been highlighted that the government has rushed through the consultation period, which closes today. Whilst Inland Revenue guidelines stipulate a minimum of twelve weeks for consultations, the latest has been completed in just ten, which includes the Christmas holidays.

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