The UK's Inland Revenue has announced changes to strengthen its ability to prevent individuals and c...
The UK's Inland Revenue has announced changes to strengthen its ability to prevent individuals and companies evading or avoiding tax. It has also cracked down on a number of popular capital gains tax (CGT) avoidance measures widely used by high net worth individuals.
Chancellor Gordon Brown announced in the budget on 21 March that it aims to negotiate a series of information sharing agreements with other jurisdictions.
Each country involved will then provide everyone's savings income details. The Government wants to establish many of these agreements to maintain as even a playing field as possible between the different jurisdictions. This would extend to countries outside the EU and would include centres such as Jersey, Guernsey and the Isle of Man.
The announcement received a mixed reaction from the offshore industry.
Nigel Taylor, director of investment fund business at Guernsey, said: "There are international standards established for regulation. No such standards exist for taxation. We'd certainly be willing to swap information provided there was a basis for fair competition."
Steven Beevers, director of international business development for the Isle of Man, said: "What is not clear is how far the UK wants to go with these new regulations."
A further dilemma for centres is that as the information exchange only applies to interest-paying investments, there could be a big shift out of cash deposits. This could be particularly significant for centres such as the Isle of Man that has an estimated $200bn of cash deposits.
On CGT avoidance, the new measures will target a number of sophisticated CGT-avoidance schemes using trusts. Probably, the most popular area targeted is so-called 'flip-flop' schemes where trustees incur debt and advance funds from the trust as part of a CGT avoidance scheme.
Brendan Harper, technical support manager at Royal Sun Alliance, said: "The 'flip-flop' scheme was fairly popular, particularly as other schemes have been attacked recently. The amounts of money involved in these schemes are quite substantial, and the crackdown shows the Revenue mounting a new attack on CGT avoidance."
The scheme involved trustees borrowing money against a trust and advancing this money to another trust. The older trust would then be wound up and the debt repaid, which would leave a new trust with an uplift on the value of the assets.
Another scheme attacked in the Budget involved the CGT exemption on gains arising on disposals of interests on trusts, which the Revenue claims was being used to sell assets tax-free to third parties. The Revenue signalled its intention to clamp down on this area last year.
Specific measures will stop trust losses being offset against gains of those who have bought into a trust as well as bringing an offshore trust onshore and taking it offshore again. Both areas have been the subject of a previous Revenue attack.
The crackdown measures will also use anti-avoidance legislation where gains are sheltered through the double tier of a trust and an offshore company.
Annuity market worth £4bn in 2017
For ‘distress’ caused
Oversees £30bn of advised and D2C assets
Less than a third of top paid employees are women
£1bn business since inception