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Changes announced by HMRC to Capital Gains Tax (CGT) are likely to have a significant impact upon everyday tax-planning transactions between spouses, according to the Chartered Institute of Taxation (CIOT).

The Targeted Anti-Avoidance Rule (TAAR) was initially presented in the Pre-Budget Report (PBR) in December 2006.  In his 2007 Budget Statement, the Chancellor reaffirmed that although the TAAR would be implemented in its original form, new guidance would be published on how it would be applied. This guidance is now available.

The TAAR is being introduced because there was evidence from disclosures and other sources that tax avoidance using capital losses was becoming more widespread, and that the intended effect of existing legislation was being circumvented by new avoidance schemes. The evidence included schemes to create artificial capital losses which could be set off against individuals’ taxable income. There were therefore significant new risks of loss of both CGT and income tax, and the Government decided to act to prevent the further creation and utilisation of capital losses in circumstances unintended by the legislation.

The CIOT supports the overall policy objective behind the TAAR in terms of stopping unacceptable tax avoidance but does have significant concerns about whether this TAAR actually achieves that objective. 

Emma Chamberlain, Chairman of the CIOT’s Capital Taxes Sub-Committee, says: “The CIOT has raised concerns with HMRC that the draft legislation in the PBR did not match the policy objective.  In particular, we were concerned that the draft legislation, in effect, gave HMRC unlimited discretion to determine whether or not a particular transaction would be caught.  The CIOT asked for HMRC to give examples of acceptable transactions which would not be caught by the TAAR.”

Unfortunately, rather than including additional examples of acceptable transactions, the new guidance is mainly devoted to additional examples of unacceptable transactions which do not seem consistent with each other.

Emma Chamberlain adds: “The CIOT believes that the problems with the guidance clearly illustrate the danger of giving HMRC too wide a discretion to determine whether a transaction is taxable or not.  We continue to call on the Government to implement legislation which is fair, clear and targeted.”

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Chartered Institute of Taxation