The introduction of a GAAR has been anticipated by many within the tax and wealth planning industry for a number of years, but has only become a reality more recently following an independent review by Graham Aaronson QC in 2010. The review concluded that a “broad spectrum” anti-avoidance rule would be beneficial for the UK tax system.
In the 2012 Budget, Chancellor George Osborne confirmed a GAAR would be introduced and on 12 June HM Revenue & Customs published a consultation and draft legislation for review by the industry. It had been anticipated that the finanl legislation would be enacted in April next year, but this has been delayed until the summer.
This latest draft, published as part of the Finance Bill 2013, includes some amendments made in response to the consultation. The most significant change relates to the wording of the “double reasonableness test” which has been amended to clarify to, according to HM Treasury, “ensure that the GAAR operates as intended”.
In a foreword to the “summary of responses” to the consultation, Exchequer Secretary David Gauke said “GAAR is a significant new development in the UK tax system” and said feedback showed “widespread support for a GAAR which meets the twin goals of protecting our tax system from abuse while maintaining the attractiveness of the UK as a location for genuine business investment”.
Yesterday’s legislation also confirmed that the GAAR Advisory Panel, which is to be set up to montnor the implementaion of the reules, will not be independent from HMRC.
The news has been me with a mixed reaction so far.
Sophie Dworetzsky, partner at international law firm Withers, said, while the aims of the UK Government are “laudable”, the published legislation shows there is “still some work to do”.
“A number of improvements have been made, especially removing the idea of a ‘double reasonableness’ test, but it remains the case that there is a risk that perfectly legitimate tax planning may end up being viewed as abusive if it generates normal tax advantages, and taxpayers then having to deal with a potentially lengthy series of debates with the GAAR advisory panel,” she said.
“In many ways, this is where the real opportunity has been lost. The GAAR advisory panel will not be independent of HMRC. Had the Advisory Panel been truly independent, this would be a huge step in adding a feeling of greater impartiality to the GAAR, and also likely make its decisions rather more democratic.”
Opportunity for advisers
Meanwhile Gerry Brown, technical manager at Prudential, said the legislation is the “final piece of the puzzle for HMRC” and will make it very difficult for those wanting to run abusive schemes. However, he added that for those advisers in the UK concerned about the business they will do following the RDR’s implementation next year, this type of sweeping regulatory change presents an ideal opportunity.
“If I was an IFA now, or in the spring of 2013, I would be looking to contact my clients saying ‘you do realise the government has brought in a GAAR, this means that if you want to do IHT planning or any other form of tax planning, you really have to act early and use well established techniques and that will involve starting you planning process sooner rather than later’,” said Brown.
“It’s an opportunity for advisers to contact their clients and some advisers are concerned about what they’re going to be doing in 2013 and this is the sort of thing they can charge for – this is definitely advice, it’s not transactional.”
To read an explanation of the rules when they were announced in June this year, click here
