STEP Spring Conference 2017

Our Private Client tax specialist, Geraint Jones recently had the honour of reporting on the key updates from the last STEP conference and was featured in Taxation magazine. Topics discussed were inheritance tax planning, residential nil rate band, wills and discretionary trusts.


Date: May 2017

Location: London

Speakers reported:

Chris Whitehouse, 5 Stone Buildings

Lucy Obrey, Higgs & Sons

Peter Rayney, Peter Rayney Tax Consulting Ltd

Professor Lesley King, professional development consultant for the University of Law

Inheritance tax planning

Chris Whitehouse highlighted several tax planning opportunities to reduce potential inheritance tax, including the use of reversionary leases. By way of example, the taxpayer would grant a 199-year reversionary lease that takes effect in 20 years. This would reduce the current value of the property by about 50%, which would be a potentially exempt transfer (PET). As the years passed the property’s value would diminish progressively each year. Those diminutions would not be PETs. Thus, as the taxpayer approaches old age, the estate value of their property diminishes for tax purposes.

Chris also discussed a spouse gifting property to their dying spouse in the expectation that the asset will benefit from a tax-free uplift to market value when the person dies. Chris also pointed out that, somewhat surprisingly, HMRC guidance specifically states that this would not be caught by the general anti-abuse rule.

Two lifetime planning tips for children entail gifting surplus income and the use of insurance arrangements. The surplus income option requires that gifts are made out of income in a way that there is no depletion of capital. This requires good record-keeping but there is no restriction on how much can be gifted. In extreme cases the sums could amount to in excess of £1m a year. He warned that HMRC is aware of this relief so it may not last much longer. Insurance can be used to cover the potential tax cost of failed large PETs and this policy could also be used with discounted gift plans, flexible reversions and loan trusts.

Chris turned to the creation of an immediate post death interest (IPDI). He suggested that on death an IPDI should be established for the surviving spouse. The trustees would have the power to terminate the IPDI and to advance capital to the children. That way the monies could pass down to the children tax-free.

On debt-for-equity swaps, Chris cited the example of a person who owned 70% of the shares in a cookery company and had lent it £100,000. A simple debt-for-equity swap turned the £100,000 loan into shares qualifying for business property relief. If the shares were issued by way of a rights issue the additional shares would not need to be owned for two years to qualify for the relief. This would also not be reportable under the disclosure of tax avoidance schemes regime.

An often-forgotten trap related to the clawback rules for gifts qualifying for business property relief and agricultural property relief. These state that, if the donor of such a gift dies within seven years of the transaction, there is a clawback of the relief at the time of the gift if the donee no longer owns the property. So it is important be careful with lifetime gifts.

Chris’s final suggestion was to ensure that farm buildings are not left unoccupied because this could result in them ceasing to qualify for agricultural property relief. Even if the properties are let to non-agricultural workers on a commercial basis it may be possible to claim business property relief on the basis that the overall business is ‘wholly or mainly’ qualifying (CRC v Brander (Earl of Balfour’s personal representative) [2010] STC 2666.

Residential nil rate band

Lucy Obrey outlined the complexities and pitfalls of the new residential nil rate band. The first, and probably most important, point is that, as with the transferable nil rate band, the allowance has to be claimed. It can relate to more than one former spouse but cannot exceed 100% of the residential nil rate band. However, the residence nil rate band is reduced by £1 for every £2 that the deceased’s net estate exceeds £2m. That threshold is set until 2020-21, after which it will increase in line with the consumer prices index.

It should also be noted that, because the £2m threshold is the value before exemptions and reliefs, assets qualifying for business property relief would be included in the calculation.

The £2m threshold value is taken at death and there is no accumulation of gifts. Therefore deathbed gifting can be tax-effective.

So gifts to a spouse just before death could reduce the value of the estate to beneath £2m. Care must be taken to ensure that there is no bunching of estates because the recipient may not qualify on their death.


Professor Lesley King highlighted the use of IHTA 1984, s 144. This applies when property is settled by will and within two years of death but before an interest in possession occurs, an event occurs that would otherwise be chargeable to inheritance tax. In such cases the estate will be treated as if the property were left directly to the beneficiary, with the effect that the trust disappears.

This can be used to unscramble old discretionary will trusts so that an appointment of the nil rate band to the surviving spouse will cause the discretionary trust to disappear. However, Lesley warned that s 144 cannot apply after an interest in possession has arisen.

Discretionary trusts

Peter Rayney warned of the dangers of creating a pool charge when distributing from a discretionary trust. These distributions carry a 45% tax credit but, as a result of the £1,000 exemption and the dividends rate of 38.1%, sometimes the tax that the trust has paid is insufficient to vouch the tax credit on a distribution.

Peter also warned of the dangers of a loan to a related trust. If a loan is made by a company to a trust in which the company owner is either a trustee or beneficiary, there is a danger that a charge under CTA 2010, s 455 could arise.

The Finance Act 2016 introduced a targeted anti-avoidance rule under which phoenix arrangements are regarded as being tax-driven. HMRC is interested in circumstances when, on liquidation, retained monies are extracted with the benefit of entrepreneurs’ relief and then the same or a similar trade is started in a new entity.

This should not affect genuine retirements, but it could affect a special purpose vehicle.


The article is also available as a pdf and on the Taxation website.

For more details on any of these updates, please contact Geraint Jones using the details on this page.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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