HMRC has issued some updated guidance on the pre-owned assets charge and in particular setting out their revised view on double trust or home loan schemes. In broad terms this involves a sale of a house at full value to Trust 1 with the sale proceeds left outstanding. The vendor continues to occupy the house. The debt is settled on Trust 2 for the vendor’s family.
HMRC take the view that by not calling in the loan the trustees in Trust 2 enable the vendor to benefit from the debt (because otherwise the house would have to be sold) and he therefore has a reservation of benefit in respect of the gift to trust 2. Alternatively, if the trustees are somehow constrained from calling the loan, HMRC say that such an arrangement is a pre-ordained series of transactions. The Ramsay doctrine applies – the composite transaction has the effect that the vendor has made a gift of the property and has continued to live there – and therefore it is a gift with a reservation.
(This is a serious argument and it is inappropriate to whinge about it, but I cannot avoid drawing a parallel with a trip to Paris on the Eurostar. I could have gone by air and I would have paid the air passenger duty. In either case I started in London and ended up in Paris. The result is the same as if I had gone by air so maybe I should pay the tax as if I had gone by air. I do not see that it makes any difference if I went on the Eurostar specifically because I did not want to pay the tax.)
Anyway moving on, HMRC say that the matter is the subject of litigation and in the meantime they suggest (but only suggest) that those paying the pre-owned assets charge should continue to do so knowing that HMRC will repay it with interest should it prove not to be payable – irrespective of any time limits for repayment that might otherwise apply.