Comment on the effect of the budget on those who borrow to acquire assets by Mark Giddens, Partner of UHY Hacker Young.

Under the heading “Inheritance tax: limiting the deduction for liabilities”, the Chancellor has announced a number of measures that apparently “will only affect individuals entering into avoidance schemes involving debts to artificially reduce the value of an estate”.

While the principal target is no doubt those who engage in aggressive tax avoidance, HMRC appear to have taken the opportunity to ensure that those who borrow to acquire assets that qualify for reliefs such as Business Property Relief, Agricultural Property Relief or Woodlands Relief will have any outstanding loan matched against the relievable assets.

The result is that their IHT liability is likely to be significantly higher.

This will hit those who borrow against the security of their home to fund an investment in, say, a portfolio of AIM shares (with Business Property Relief available after two years of ownership); it will also hit someone who has borrowed to invest in shares in a family trading company or farming business.

These are all pretty straightforward IHT planning and investment strategies that will be caught by these anti-avoidance measures.

Offshore tax havens

The announcement that the UK government is finalising information exchange agreements with Guernsey and Jersey is no surprise – it was known that negotiations were ongoing and the Guernsey authorities made an announcement of their own only last week.

Nevertheless, these agreements are an interesting development in a process of shutting down tax havens (or at least restricting their ability to operate) that now seems to have a momentum of its own (albeit one driven to a large extent by the US’s FATCA provisions).

For UK taxpayers with undisclosed assets in these jurisdictions decision time is fast approaching – whether to come clean to HMRC now or to risk an investigation and possible criminal charges (and naming and shaming) as well as significant penalties as and when information is passed to HMRC. For the Revenue (and the government) this is a win-win policy – great PR as they are seen to be taking action against offshore evasion and the extended use of an established disclosure process that enables them to bring in significant additional tax at minimal cost.

As and when the new agreements are finally signed, it will be necessary to look at the terms very carefully. While the disclosure facilities bear quite a resemblance to the well-established relationship with Liechtenstein, it is already clear that the terms are not as generous and that anyone with offshore deposits who decides that their time is up needs to take expert advice before they risk an approach to HMRC.

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