The Disclosure of Tax Avoidance Schemes (DOTAS) rules require advisers to disclose certain tax avoidance schemes to HMRC and identify clients who use those schemes.
DOTAS applies to most taxes (and there is a similar scheme for VAT) but, for inheritance tax (IHT), reporting is currently limited to arrangements aimed at avoiding or reducing the tax charge on setting up a trust. Furthermore, the IHT rules only require disclosure of new and novel schemes, so arrangements similar to those used before 6 April 2011 are not disclosable at present.
The Government now proposes to extend the application of DOTAS to IHT generally and to remove the "grandfathering" rule. Schemes similar to those used in the past will now need to be disclosed, therefore, if designed to avoid IHT on death, on trusts or on lifetime transfers.
However, the consultation document says that the new rules should "remain tightly targeted" and apply only if an "informed observer" could reasonably conclude that the arrangements amount to an IHT avoidance scheme. (There is no indication of what sort of a person an "informed observer" is, unfortunately!) The examples in the consultation document confirm that rather ordinary planning, such as making a Will and the "straightforward" use of exemptions and reliefs will not be disclosable but offer no real assistance. We will be responding to the consultation and will report on the outcome in due course.