HMRC shuts down £10m CGT avoidance scheme
Court of Appeal upholds HMRC ruling that scheme, which cost around £200,000, was not legal.
The Court of Appeal has upheld a ruling from HM Revenue and Customs against a scheme used by a former business owner to avoid a tax bill on gains made when he sold his company in 2003-2004.
According to HMRC, the individual made a profit of about £10m from the sale of the business, though he used a scheme that created an artificial loss so that he wouldn’t have to pay capital gains tax on this amount.
The revenue added that the individual had paid out over £200,000 for this failed scheme, not including the costs relating to the litigation.
Following the verdict by the court, HMRC said that the scheme is effectively shut and can no longer be used by others seeking to mitigate CGT in similar instances, saying this has resulted in more than £90m of tax being ‘protected’.
In a statement HMRC said that the case was one of three that it has won in recent months, alongside similar rulings being upheld at the Upper Tribunal and First Tier Tribunal in July relating to two further tax avoidance schemes.
The first case in the Upper Tribunal concerned a scheme that borrowed UK government bonds generating an interest coupon for one day when a coupon was due.
A payment representative of that coupon was made to the lender, for which tax relief was claimed. At the same time the scheme envisaged that no tax would be due in respect of the interest coupon received.
The scheme has been described by the Tribunal as a “designed and marketed tax avoidance scheme” which had been taken up by well over 100 individuals. The total tax at stake was around £100m, according to HMRC.
The second case in the First Tier Tribunal concerned the directors of Sloane Robinson Investment Services, who used a scheme that they later modified following a change in the law to avoid paying tax on “significant bonuses”. About £13m of tax was at stake.
All of the decisions mentioned above may be subject to appeal.
Jim Harra, HMRC’s director general of business tax, said: “These wins in the courts are a victory for the vast majority of taxpayers who do not try to dodge their taxes. They send a clear message to tax avoiders: HMRC will challenge tax avoidance relentlessly and we will beat you.
“We have now had three major court successes in avoidance cases in the last month alone and I hope this sends a very clear message: These schemes don’t come cheap, you carry a serious risk that you’ll end up paying the tax and interest on top of a set-up charge which can run into the hundreds of thousands of pounds.”