Anti-avoidance summary

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Anti-avoidance summary
  • Targeted anti-avoidance rules
  • The Ramsay principle
  • HMRC indicators of avoidance
  • Disclosure of tax avoidance schemes (DOTAS)

What is tax avoidance? The Duke of Westminster case confirmed that the taxpayer has the right to arrange his affairs in the most tax efficient way using the tax law as it stands so as to minimise tax liabilities. Such arrangements fall within the scope of tax planning.

IRC v Duke of Westminster 19 TC 490 (subscription sensitive)

Tax avoidance and tax planning are one and the same. Both are a legitimate use of the tax legislation to try and secure a tax advantage. Contrast this with tax evasion, in which the taxpayer reduces his tax bill by illegal means, such as failing to disclose income or gains, wilfully understating income or overstating expenses and generally using improper means to disguise the true picture.

As well as more complicated tax planning, examples of simple arrangements include:

  • equalising spouses’ income and gains to utilise allowances and exemptions (see Utilising allowances and lower rate bands and Utilising annual exemption guidance notes)
  • allocating losses in the most tax efficient way (see Checklist - trading loss relief and the Use of capital losses guidance note.
  • making tax efficient investments (see the Tax efficient investments guidance note).

HMRC is taking an increasingly hard stance on legal tax avoidance; blurring the line between avoidance and evasion. It considers certain types of tax avoidance to be within the letter, but not the spirit, of the law. HMRC’s position is often supported by the 'Ramsay principle’ arising from case law, which reinforces the purposive interpretation of the legislation as opposed to literal analysis (see below).

There is no general anti-avoidance rule in the UK tax legislation, however in relation to arrangements entered into on or after 17 July 2013 the general anti-abuse rule (GAAR) must be considered.

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