Gordon Brown’s proposed clampdown on people who avoid inheritance tax by giving away assets while continuing to enjoy the benefits is “riddled with holes” and should be withdrawn for redrafting, leading accountants said on Sunday.
”We have found many problems in the legislation already,” said Anita Monteith, tax consultant at the Institute of Chartered Accountants in England and Wales. “Some are because of omission, some are technical and some are just wrong.”
The measures, announced in the Budget as part of a crackdown on tax avoidance, ruled that schemes set up to allow people to dispose of valuable assets while retaining the ability to use them would no longer work because income tax will be charged on the retained benefit.
Ms Monteith said: “The government’s motivation is to catch people who are trying to avoid paying IHT. Rather than addressing that, they have dreamed up an even more complicated scheme with holes in it. They should scrap the whole idea and come up with a targeted legislation. If there’s a problem, why don’t they deal with it rather than redrafting everything?”
One example she gives is that remote contributions would also be caught under the scheme. For example, if a parent gave £20,000 to his or her son today which he used to set up a business, and years later he bought his parent a house, the son could face a high income tax charge on that money.
”We do not think that the Revenue want to catch anything this remote and that’s one of the reasons why we expect a change to the rules,” said Ms Monteith.
There is also a double taxation problem. If a son gives money to his father, who buys a house then dies, the son would be caught by an income tax charge if he moved into the house. The father’s estate would also have had to pay IHT on its value.
The Revenue said: “We will not tax legitimate transactions between family members. This legislation is designed to prevent complex tax avoidance scams where people are hiring accountants and tax advisers to deliberately avoid the taxes everybody else pays.”
