"Tycoons who backed the Brexit campaign accuse taxman of 'political attack' as HMRC uses 'obscure' inheritance law to demand bills of up to £2million"

Full article at The Daily Mail, it's light on detail but so are all the others.

This is what's known in the tax advising business as "a bloody outrage".
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Here's a crash course in Inheritance Tax to set the background:

1. On death, the entire value of your estate is liable to Inheritance Tax at 40%.

2. This is subject to lots of exemptions, like the first £325,000 in value, exemptions for certain assets (shares in family business, main residence up to a certain value) and for certain transfers (to a surviving spouse or a charity) etc.

3. Obvious dodge #1 is to give stuff to your family before you die, so there's another rule that says all "transfers of value" made in the seven years before death are added back and treated as being included in your estate on death

4. But the IHT on lifetime transfers is only triggered when you die (but see 6 below). Such transfers of value are, for the time being, "potentially exempt transfers", the condition being that your live at least another seven years. There is no tax at the time of the transfer of value itself.

5. Please note, "transfer of value" means basically "gifts", but it is a bit more subtle than that, so let's stick to the correct term. Anybody who says that "IHT is payable on gifts" is either simplifying, being deliberately misleading or has missed the point.

6. Obvious dodge #2 is to give stuff to a discretionary trust or a company owned by family members, which in turn can make transfers to named or defined people. Trustees/directors are a continuing body, and so cannot die, and the beneficiaries/shareholders do not own the assets directly (so the value of the assets can't be included in their estates when they die). This is blocked/discouraged in two ways:
- When you transfer stuff into a discretionary trust or a company owned by family members, this counts as a 'chargeable lifetime transfer', which triggers IHT of up to 20% of the value of the assets, and
- Assets owned by a discretionary trust are liable to a smaller IHT charge every 10 years (a maximum of 6% on total value of assets in the trust) to even out. This doesn't apply to companies, because the value of the shares is included in people's estates.

That's 90% of what you need to know.
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So, if you give a large amount of stuff to your children and die within 7 years, there's IHT on that (total assets of family unchanged), that's a transfer of value.

Conversely, while you are alive, it's your money and if you spend it on yourself, i.e. blow it all on wine, women and song, there's no IHT on that (total assets of family reduced), it is not a (gratuitous) transfer of value.

While this is blindingly obvious, there is a section in the IHT Act 1984 that makes this clear, namely section 10(1):

Dispositions not intended to confer gratuitous benefit

(1) A disposition is not a transfer of value if it is shown that it was not indented, and was not made in a transaction intended to confer any gratuitous benefit on any person and either—
(a) that it was made in a transaction at arm’s length between persons not connected with each other, or
(b) that it was such as might be expected to be made in a transaction at arm’s length between persons not connected with each other.

There was no 'gratuitous benefit' on VoteLeave or LeaveEU. They received the money on the strict understanding that they would spend it on normal stuff like employing campaigners and advertising on an arms' length basis, which they duly did. And the employees and advertisers did not receive a gratuitous benefit either, they were just providing services for the normal payment.

Even if there were gratuitous benefit, VoteLeave and LeaveEU are not discretionary trusts, so there would be no immediate charge. Neither are they family-owned companies.

The Bremoaner in Chief has written an article which is about as wrong as you can get. He'd fail the tax adviser entrance exam with drivel like this. The donors might or might not be wealthy; might or not have indulged in tax planning, and the recipient organisations might or might not have exceeded spending limits, but all that is entirely irrelevant to the matter in hand.

He is also incapable of replying to the simplest technical question.
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I accept that the position would be murkier if any of the donors dies within seven years of having made the donations.

Section 24 states that donations to political parties are not exempt transfers of value, unless it has at least two elected MPs or one MP and the party got 150,000 votes (presumably at the last election).

IF (and that's a big IF) VoteLeave and LeaveEU are to be treated as political parties for these purposes, it means that donations to them will be added back to the total value of the donor's estate IF he dies within seven years of having made the donation.

If my analysis is incorrect on all three counts*, then just about every donation to UKIP (apart from those made in the brief period that Douglas Carswell was a legit elected UKIP MP) would have triggered Inheritance Tax.

UPDATE: Sobers reminds us in the comments that some private individuals in Scotland made £1 million donations to both 'Yes' and 'No campaigns, and these people were not hounded for IHT.

HMRC did not issue such demands in relation to those earlier donations and HMRC took a year and a half to issue the demands in relation to the recent ones, which suggests that they are not too sure of themselves.

There is another general rule in tax that the taxpayer is given the benefit of the doubt if the rules are not entirely clear.

Alternatively, HMRC have to show that the taxpayer has somehow achieved an outcome (passing assets to family members) in such a way as to try and circumvent legislation which is clear.

* HMRC would have to show that the donations do not fall within s10(1). If they don't, then HMRC have to show that VoteLeave and LeaveEU are to be treated as discretionary trusts; alternatively, HMRC have to show that VoteLeave and LeaveEU are to be treated as political parties AND to wait and see whether any of the donors dies within seven years.
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Right, having got that off my chest, I am now off to rejoin the Xmas Eve festivities, as I hope you will too :-)