The GAAR advisory panel issues three new Opinion Notices

The General Anti-Abuse Rule (GAAR) was enacted in Finance Act 2013 following a long period of consultation, between 2010 and 2013, in which ICAEW was heavily involved. 

The GAAR is designed to bring to an end abusive tax arrangements which fall foul of a double reasonableness test; that is, “arrangements which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions.”

Cases are referred by HMRC to the GAAR Advisory Panel to ensure that they do genuinely fall foul of the double reasonableness test.

Paragraph B14.1 of the GAAR guidance states:

“The procedure for applying the GAAR to any arrangement requires that the proposed application of the GAAR should be put before an advisory panel, independent of HMRC, who will give their opinion (or opinions if they are not unanimous) as to whether the arrangements in question constitute a reasonable course of action.” 

Latest Opinion Notices

Of the three Opinion Notices two concern similar facts to the first Notice involving the use of gold bullion and an employee benefit trust to avoid income tax and NIC charges. In the first case the events took place before NICs were covered by the GAAR.

The two Opinions can be viewed by clicking here and clicking here.

You can read our report on the first Opinion Notice by clicking here.

The other Opinion Notice involves the use of an offshore trust to provide monies to the sole shareholder/director of a company from which the individual had a loan of £460,000 on which tax would otherwise have been payable under the loan to participators legislation.

The scheme involved both the company and the individual in a composite set of arrangements and you can view the Opinion Notice here.

The various steps that were taken were agreed by the GAAR panel to be abnormal and contrived and in the Opinion Notice it states:

"8.2 The Trust and splitting of the Trust interests in this case appears to be designed to manufacture (at no cost other than trust set up costs) an asset that is not a loan and can be sold to a wholly-owned affiliate.

"8.3 In addition to the overall use of the Trust and the Trust interests being contrived and abnormal, there are a number of specific features we regard as contrived and abnormal:

  1. a) Mr A buying a trust interest where the only trust asset is intended to be an interest free loan to himself, the amount of the loan being substantially the same as the purchase price he pays for the trust interest;
  2. b) entering into arrangements for over 120 years where the underlying asset is a loan to an adult individual and where little regard is paid (as far as we can see) to what happens if the loan is repaid on Mr A’s death or otherwise before the expiry of that period; and
  3. c) a contract for the purchase of an income stream (the primary interest in the Trust) that contains none of the purchaser protections you would typically see in a third party transaction.

"8.4 Using a trust in this way to achieve a commercial goal is both contrived and abnormal."

The Panel also decided that what was done was not consistent with the principles on which the relevant legislation is based and the policy objectives of that legislation nor was there a shortcoming in the relevant legislation that was being exploited. It was also determined that what was being done was not consistent with established practice accepted by HMRC.