HMRC quietly announced last week that it had made some amendments to its Inheritance Tax manual, which includes changes to section IHTM27079 – Specialty debts: bonds and debentures under seal as well as a few related sections which follow.
The amendment means that where a speciality debt (which includes a debt made by deed – commonly used by overseas trusts) used to be taxed on the basis of where the relevant deed was located, it is now taxed on the basis of where the beneficiary resides, which in some cases will be the UK.
According to Gary Heynes, private client group partner at Baker Tilly, this alteration to a “centuries old” piece of tax legislation could have significant implications for overseas trusts. The tax expert also suggested the fact that HMRC did not consult the industry in anyway, could set a worrying precedent for future changes.
“This will have a major impact for those working within accepted general legal principles and HMRC practice, who suddenly find themselves in a taxable position with no consultation, no explanation for the change, and no opportunity to make any changes to their arrangements – assuming HMRC’s revised position is to be accepted,” said Heynes.
“While overseas trustees may seem a small group of taxpayers to be affected, this could impact many more taxpayers if HMRC now start changing their view in other areas of accepted practice, without consultation or opportunity to change arrangements.”
However, Gerry Brown, technical manager at Prudential did not share Heynes’s view that a consultation was necessary adding that if there were a consultation on every change in interpretation “we would never get any finality”.
It is understood that there are a number of challenges being presented to HMRC, both in relation to specific cases and the new interpretation itself.
To view the amendments please visit HMRC’s website here