News
Tax Update (December 2009)
More Anti-Avoidance Legislation
The Financial Secretary to the Treasury, Stephen Timms has
announced the introduction of new legislation to counter the
exploitation of sideways loss relief and double tax relief through
the use of avoidance schemes. Whilst legislation will not be
brought in until next years Finance Bill the Government has
introduced a general rule with immediate effect to address the
situation.
In most cases such avoidance schemes will have been promoted and
sold to the individual or business rather than created and used by
a single individual or business.
Sideways tax relief is where a person who makes a loss in a
trade, profession or vocation may claim for the loss to be offset
against their other income and capital gains. There is nothing
wrong where this loss has arisen as a result of normal trading
activities. However, the Government has become aware of continued
misuse of the provisions by creating contrived losses thus putting
substantial amounts of tax at risk.
From the 21st October 2009 sideways loss relief will
not be available where the loss arises from arrangements and the
main purpose of the arrangement is to obtain a tax reduction by
means of sideways loss relief.
Double tax relief (DTR) abuse is being tackled in three areas
namely unauthorised unit trusts, manufactured overseas dividends
and manufactured interest.
Unauthorised unit trust (UUT) schemes are designed to take
advantage of the tax rules applicable to UUTs by using them to
convert foreign income subject to withholding tax into receipts of
UK income with a tax credit attached. The aim is to either generate
repayment of this credit (though no or only minimal UK tax has
actually been paid) or get around the restrictions for claiming DTR
that would have applied had the overseas income been received
directly by the investors.
The new legislation will apply to distributions treated as made
by trustees on or after 21st October 2009.
Manufactured Overseas Dividends (MOD) schemes are designed so
that an entity receives MOD instead of real dividends with the
intention of preventing section 804ZA from applying and arise,
under an arrangement for the transfer of overseas shares, one party
is required to pay to the other an amount that is representative of
dividends on those securities. The main impact of these changes
will be on larger UK banks.
The legislation will apply in relation to amounts treated as if
they were foreign tax payable on or after 21st October
2009.
Manufactured Interest (MI) arises where, under an arrangement
for the transfer of UK debt securities, one party is required to
pay to the other an amount that is representative of the real
interest on those securities. Some of these schemes are designed so
that the recipient of such MI can offset the deemed UK tax against
any UK liability that may arise on the interest. However, some of
the schemes have specifically been designed to create multiple
claims within the UK for a single payment or otherwise give rise to
relief inappropriately.
To block these schemes the Manufactured Interest (Tax)
Regulations 2007 have been repealed and other legislation amended
with effect from 21st October 2009.
These steps are yet more measures to ensure that all taxpayers
pay their fair share of tax.