RegulationMar 27 2013

Anti-abuse rule lacks certainty

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ByRajiv Vadgama


The GAAR will apply to abusive tax arrangements entered into on or after Royal Assent later this year and will apply to all taxes. The GAAR will provide additional means for HMRC to provide for the counteraction of tax advantages arising from arrangements it considers abusive. However, the GAAR should not apply to normal commercial arrangements and HMRC will therefore have difficulty in applying the GAAR in situations where there is a tax advantage resulting from these cases. HMRC has also published its offshore evasion strategy, No Safe Havens. This sets out a coordinated framework for HMRC’s strategy in tackling offshore evasion with a renewed commitment to clamp down on those who conceal income, gains and assets overseas to evade tax. HMRC outlined that it has made significant progress in tackling offshore evasion through the increasing use of exchange of information agreements and disclosure facilities with other jurisdictions.

Recent examples include the disclosure arrangement with the governments of the Isle of Man, Guernsey and Jersey. All three agreements provide for an exchange of financial information with HMRC and a disclosure facility to enable UK taxpayers to regularise their UK tax affairs.


The Seed Enterprise Investment Scheme was launched in the Budget of 2012 and investment in the scheme brought attractive reliefs. Income tax relief was available for up to 50 per cent of the investment. Capital gains tax relief was also available on gains on assets made in 2012/13 that could be directly invested into SEIS shares. A claim could then be made for a CGT exemption on those assets (commonly known as a holiday) but was only available for gains made in 2012/13. Investments in 2013/14 could, however, be carried back in order to claim the relief in 2012/13.

The government confirmed its decision to provide a limited extension of the CGT holiday to encourage more investors. Any investors making capital gains in 2013/14 will receive CGT holiday on 50 per cent of the gain when they reinvest those gains into SEIS shares in either 2013/14 or 2014/15.

Alternatively, investors can defer capital gains under SEIS in the same way as currently possible under Enterprise Investment Scheme. This means that any gains arising on other assets realised up to three years before and one year after the shares are issued, can be deferred up to the level of the investment. Unlike the rules for the CGT holiday, these gains are only deferred and will crystallise on the sale of the shares in the new company.

Child Trust Funds

The Chancellor announced that there will be a consultation on transferring savings held in Child Trust Funds into Junior Isas.