Tax: The General Anti Abuse Rule (GAAR)
HMRC published its official guidance on 15 April 2013. The GAAR will be effective from later in the year, when Finance Bill 2013 receives Royal Assent.
The GAAR rejects the previously adopted approach that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position. Per the HMRC Guidance:
Taxation is not to be treated as a game where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce their tax liability.
The GAAR imposes an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill. That limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could reasonably be regarded as a reasonable course of action (the “double reasonableness test”).
The target of the GAAR
The primary policy objective of the GAAR is to deter taxpayers from entering into abusive arrangements, and to deter would-be promoters from promoting such arrangements. There may be tax avoidance arrangements that are challenged by HMRC using other parts of the tax code, but if they are not considered to be abusive they are not within the scope of the GAAR.
What the GAAR is not targeted at
Any reasonable choice of a course of action should be outside the target area of the GAAR. Some examples given are:
Interaction with Tax Legislation
Where there are arrangements which cannot be described as abusive, but which HMRC regards as seeking to achieve some tax advantage and as falling outside the range of acceptable tax planning, they will seek to challenge this by relying on other parts of the tax code applied in accordance with the legal principles developed by the courts in recent years.
The GAAR is the overriding power to challenge abusive tax arrangements which would not otherwise be taxed. It should be considered when planning any structuring to take effect after it is introduced.
If you are unsure as to how the GAAR could affect you and your tax bills call our expert Leanne Hathaway today on 01509 212108 for more information and support.
Leanne is a Chartered Tax Adviser, specializing in advising on UK tax matters but also including overseas tax as needed. Leanne is head of Taxation Services at EHL Solicitors in Leicester.
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