In the Pre-Budget report of December last year the Government announced a “targeted anti-avoidance rule” (TAAR) aimed at the use of losses for capital gains tax that have been realised as a result of any “arrangements” the main purpose (or one of the main purposes) of which is to secure a tax advantage. A similar rule was introduced for corporation tax purposes a year earlier and the new rule extended this to individuals, trustees and personal representatives.
The intention of the rule is to stop the use of contrived capital losses to set against capital gains. At the time of the Pre-Budget Report HM Revenue & Customs (HMRC) issued guidance that indicated that normal tax planning would not be caught by the rule. One example given was of transactions between husband and wife under which the husband had made capital gains and his wife transferred a loss-making asset to him. The Original Guidance described this transaction as straightforward and not intended to be caught by the TAAR. However, when the draft legislation was published in the Finance Bill 2007 HMRC issued revised guidance, this example was removed.
This caused some worry in the tax world as what had previously been considered standard tax planning between spouses and civil partners would now be considered unacceptable tax avoidance. The Chartered Institute of Taxation (CIOT) and other professional bodies expressed concern that the legislation itself was far more widely drawn than the guidance suggested and made representations to the Government.
Clause 27 of the Finance Bill which contained the TAAR was debated by the Finance Bill Committee last week. The opposition tabled several amendments to this clause including a clearance procedure and a de minimis of £25,000. However, all the amendments were subsequently withdrawn and the clause will now enter the statute as originally drafted.
Throughout the debate, however, the Government insisted that the TAAR was not targeted at normal tax planning but is only intended to catch contrived and complex arrangements. Ed Balls, The Economic Secretary to the Treasury, said:
“I explained two examples in which a fall in the value of FTSE 100 shares gives rise genuinely to a loss, which can be offset elsewhere on gains, where the tax advantages are incidental but the transactions are genuine. I also explained the straightforward way in which statutory tax relief can be passed between husband and wife in a way that allows a loss to be set against a gain. The clause does not interfere with that normal tax practice and planning.”
Hopefully this will be reflected in the expected Revenue Guidance that will accompany the Finance Act 2007.
