Disclosure of tax avoidance schemes

The rules on the disclosure of tax avoidance schemes (DOTAS) (and their indirect tax equivalent, disclosure of tax avoidance schemes for VAT and other indirect taxes (DASVOIT)) oblige tax advisers, or sometimes the taxpayer, to inform HMRC about certain arrangements avoiding UK taxes. Further rules require the disclosure of certain cross-border arrangements to avoid obligations to report information on financial accounts and beneficial ownership. Initially these rules were contained in legislation implementing the EU directive known as DAC 6, but these were replaced with new legislation to implement the OECD Mandatory Disclosure Rules (MDR) applicable to arrangements entered into on or after 28 March 2023.

For more information on the MDR, see Practice Note: Disclosable cross-border tax arrangements—Mandatory Disclosure Rules (MDR) and below.

Making a disclosure has no bearing on whether the arrangements have their intended tax outcome. This means, for instance, that if a scheme is legally effective (from the taxpayer's point of view), HMRC will have to legislate to stop it. There is no obligation on HMRC to comment on the effectiveness of a disclosed scheme.

The intention of the disclosure

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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