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The General Anti-Abuse Rule (GAAR) advisory panel has issued a new opinion on ‘Reducing an estate's value for inheritance tax via subscription for shares in a new company and gifting shares to an employee succession trust’.

The GAAR is structured by way of a ‘double-reasonable test’:

The planning involved the setting up of a new company whereby a significant sum was used to subscribe for shares which were then gifted into a UK resident employee trust. In the specific case:

It was claimed that the transfer into trust was an exempt transfer for Inheritance Tax (IHT) under s.28 IHTA 1984 as:

If s.28 did not apply there would have been a chargeable lifetime transfer, taxable at 20% when the trust was set up and the value of the gifted shares would have remained in the deceased’s estate on her death shortly afterwards.

The panel, in finding that the arrangements failed the double reasonableness test, considered it was contrived and abnormal to transfer shares into a trust for the benefit of employees at a time when the business did not have or need employees and only the settlor's family could benefit. There was no evidence that the deceased wanted to use the trust to benefit non-family members.

It described the trust as being 'dressed up' and 'camouflaged' as a trust for the benefit of employees. It actually looked and operated like a family investment trust, making frequent references to 'money box companies'. It found that the motive for setting up the trust was not to benefit employees but to avoid IHT.

The panel went on to say that:

Links to our guides

General Anti-Abuse Rule (GAAR) (subscriber version)
This briefing note looks at the key features of the General Anti-Abuse Rule (GAAR) contained within the Finance Act 2013, what areas of tax it covers and what you need to know about the provisions it contains when considering tax planning.

Penalties: GAAR
Finance Act 2016 introduces a penalty when a taxpayer submits a return, claim or document to HMRC which includes arrangements which are later found to come within the scope of the General Anti-Abuse Rules (GAAR).

IHT: Estate planning checklist
This checklist covers some of the essential planning points that taxpayers should know when planning for their estate and Inheritance Tax.

External link

GAAR advisory panel opinion: 'Reducing an estate's value for inheritance tax via subscription for shares in a new company and gifting shares to an employee succession trust’.