Consultation, consultation, consultation

In much of public service, consultation is a bit of a buzz word. In East Sussex, the public are being consulted for their views on a new road, while in Norfolk they are being asked for their views on withdrawing funding for mental health care for older people.

The trouble with consultation, some say, is that it can be a bit of a misnomer.

Sometimes the views of the respondents are heard and then ignored, rendering the consultation no more than lip service. After the period of so-called consultation the outcome is what the planners had intended all along.

But sometimes consultation works. Sometimes, the bodies responsible for making decisions that will affect the public consult with a group of people who are in a position to give informed views and advice. This was the case recently with discounted gift trusts (DGTs).

HM Revenue & Customs (HMRC) took the sensible step of consulting with practitioners on a number of issues relating to DGTs and the result is guidance for advisers working in this area.

Specifically, HMRC clarified its stance in three areas:

Firstly, it has confirmed the methodology that providers should use in the valuation of gifts. HMRC has said the value of the gift will be based on the settlor’s sex, age, health and insurability as at the gift date. It has also outlined its current assumptions on mortality and interest rates for this purpose. This is crucial for determining the discount available on a DGT and therefore affects the amount of IHT payable.

Secondly, HMRC has outlined the correct methodology for valuing joint settlor cases. Whereas previously in joint cases (typically husband and wife), many providers assumed the discounted value of a gift could be shared equally between the two individuals (i.e. 50:50), HMRC has confirmed the correct approach is to value each individual’s discount based on their own sex, age, health and insurability as at the gift date. In effect, this means the correct discount will be allocated to the correct settlor.

Thirdly, HMRC has confirmed the requirement that full whole life underwriting should be carried out for DGTs. A more standard approach to calculating discounts should be welcomed, as this new clarity is going to make things more straightforward for advisers. Certainly I have yet to meet an adviser who expresses a preference for making anything to do with DGTs more complicated.

The announcement is good news for the industry, but not just because advisers can be more confident about HMRC’s position in relation to DGTs. It is also good news because it shows that if done correctly, consultation can work.

It’s good to see HMRC engaging with the industry and having sensible discussions involving the right people. Let’s have lots more of it please and not just on DGTs.

Colin Jelley is head of tax and financial planning at Skandia.

The views expressed are those of the individual and not those of the company he represents.