ANTI-AVOIDANCE MEASURES
Pensions
April 2006 (‘A’ day) will see the
introduction of the long awaited new taxation regime for pensions. The
government is concerned about potential abuse of the new regime and the
Pre-Budget Report contained details of two new measures.
From
‘A’ day the government will remove the tax advantages for investing
in residential property or certain other assets such as fine wines, classic
cars and art and antiques from pension schemes which are
‘self-directed’. This will include Self Invested Personal Pension
Schemes (SIPPS) and Small Self Administered Schemes (SSAS). The effect will be
to remove all tax advantages from holding prohibited assets directly or
indirectly in such schemes and will broadly mean that it is at least no more
advantageous to hold such assets in a pension scheme than it is to hold them
personally.
The government is also introducing an anti-avoidance
provision to prevent a device known as ‘recycling’. The device
works by taking a tax-free lump sum from a scheme which is reinvested back into
another scheme giving further tax relief on the amount invested. This in turn
allows a further tax-free lump sum to be paid out. The new rules will remove
tax advantages in relation to lump sums which are artificially recycled in this
way.
Tax schemes
In 2004 new disclosure rules were introduced in
relation to certain tax schemes. Broadly the rules require
‘promoters’ to provide details of their schemes to the Revenue
shortly after the scheme is sold. The government now intends to:
- improve the effectiveness of the
‘filters’ for direct tax to ensure they reflect recent developments
in avoidance behaviour
- extend the regime to all of income tax, capital
gains tax and corporation tax
- require businesses to provide information on direct
tax schemes and arrangements devised ‘in-house’ within 30 days,
bringing them more in line with the rules for scheme promoters.
The changes will be effective from April 2006.
Sale of lessor companies
Groups of companies have benefited from capital
allowances in the early years of a lease, before selling lessor companies to
loss-making groups, thereby avoiding paying tax on the subsequent profits.
A measure is introduced effective from 5 December 2005 which imposes a
charge on the lessor company to recover the tax benefits that have been taken
but grants an equal relief on the day after the sale.
Other measures
A number of further measures, effective from 5
December 2005 were also announced in the Pre-Budget Report as follows:
- rules will be introduced to ensure that corporate
capital losses can only be created and used as a result of genuine commercial
transactions rather than to gain a tax advantage
- an avoidance scheme that involves stock lending
whereby taxable income is converted into a non-taxable receipt is blocked
- avoidance that seeks to generate unintended relief
for corporate intangible assets is stopped
- rules are introduced to counter schemes designed to
generate capital losses on disposals of rights conferred by certain insurance
policies
- action is being taken to stop UK-resident
individuals avoiding tax by transferring assets abroad and exploiting offshore
companies and trusts
- rules are being introduced to stop inheritance tax
avoidance that uses second-hand interests in foreign trusts and to close a
loophole which allows individuals to avoid paying either inheritance tax or the
income tax charge on pre-owned assets
- the government is stepping up its activities in an
attempt to tackle Missing Trader Intra-Community VAT fraud
- further measures were announced in relation to
tobacco smuggling, spirits fraud and oils fraud.
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