Written by: Mark McLaughlin, Toby Harris and Iris Wunschmann-Lyall

Inheritance Tax 2006/07 is amazing value being a fraction of the price and in terms of length. Once again the approach is narrative style taking the reader through topics commencing with the basic rules relating to inheritance tax, lifetime transfers, gifts with reservation of benefit, settled property and finally reliefs including business and agricultural property. Although the title mentions nothing about estate planning, it did seem to me that there were more planning ideas in this book than in the British Tax Guide equivalent.

Some things are said which I could disagree with, not because they were wrong but because they apparently follow HMRC propaganda. For example it is said that a sale of a property at undervalue to a family member is a gift with reservation to the extent of the undervalue and only that fraction of the property is caught if the reservation continues till the death of the vendor. In the good old days of estate duty, there was a provision (FA 1894, s 3) which dealt with sales for partial consideration, but there is no such provision in the inheritance tax gift with reservation of benefit rules and in consequence there are plenty of grounds for saying that the whole thing is caught. Certainly in other contexts, a small element of gift taints the whole transaction and brings it within the rules.

The chapter on pre-owned assets contains an interesting example of a gift of chattels scheme where the donor agrees to pay full value for retaining possession of the items concerned. The example says that pre-owned asset liability arises on 5% of the value of the chattels, with a deduction allowed for the payments made by the donor. An example of this type also appears in HMRC's publicity, but why is the arrangement not exempt on the basis that full consideration is being given? Or if there is some doubt about the adequacy of the consideration, why is there not a gift with reservation, and as a result no liability to pre-owned asset tax? There is an answer to all this but unless you are highly immersed in the topic you will never arrive at it from HMRC's publicity. I would certainly not blame the authors of the book for reaching the conclusion which they have, but I do blame our political machinery for creating a tax which includes such impossible conundrums for the taxpayer to solve under self assessment that even its own servants confuse themselves.

Review by: Malcolm Gunn FTII, TEP, Squire, Sanders & Dempsey, Taxation Magazine 2007

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