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Alistair Cunningham: Will GAAR be the thin end of the wedge?

Alistair Cunningham MM blog

On 14 September 2012, HMRC closes its consultation on plans to introduce a general anti-abuse rule to cut down on aggressive tax evasion, with a view to introduce legislation in the 2013 Finance Bill.

Politicians and retail journalists have been scandalised by “morally wrong” tax avoidance schemes and public figures, such as Jimmy Carr, have been marked as pariahs.

I often quote a 1929 judgement where Lord Carr explained that there was no obligation on anyone to arrange their affairs in anyway other than to minimise the tax on their affairs.

My initial reaction to the GAAR and blatant anti-avoidance propaganda, which appeared to have the clear aim of making all planning unpalatable by the general public, was one of revulsion. Further reading has changed my views and while as professional advisers I believe we should push back strongly against any broad attacks on tax planning, the GAAR is anticipated to be highly focused in its nature.

Graham Aaronson QC, leader of the recent independent study into whether a GAAR would benefit the UK, has made five principal observations about what a GAAR could accomplish; that it would deter abusive tax avoidance schemes, contribute to providing a more level playing field for business, reduce legal uncertainty around tax avoidance schemes, help build trust between taxpayers and HMRC and offer opportunities to simplify the tax system.

It seems unlikely that, in the short term, the GAAR will simplify the tax regime and it would be a substantial step forward in trust to repeal targeted anti-avoidance legislation.

Also, while it seems logical to target capital gains tax and income tax, the position on inheritance tax, which is principally not a tax in lifetime (except on certain gifts), should be quite different a point which is touched on in the consultation document but no firm assurances are made.

At the core of the GAAR is a subjective “abusiveness” test, and this has been the source of much of the suspicion. The “reasonableness” of any arrangement is up for challenge by HMRC and this will lead to uncertainty.

From this uncertainty, reference will be made back to legislation, and it is quite plausible that the tribunals and the courts will become the means by which the GAAR is exercised.

Other commentators have observed that the intent of the GAAR seems to be to prevent actions that are not necessarily breaches of statute – this assumption of criminality on actions that are not specifically in legislation seems quite against the normal rule of law and against the normal Parliamentary constitution of this country.

Overall, the GAAR seems to be aimed at (to use the words of the Institute of Chartered Accountants of England and Wales’s President) “Smart Alec” schemes, the most aggressive forms of tax avoidance.

It is notable that the Society of Truste and Estate Planners, the Chartered Institue of Taxation, the Institute of Chartered Accountants of Scotland and ICAEW have declared their support for the Government’s proposals. For now, there seems little to be concerned about with the GAAR as more aggressive avoidance is likely to be shunned by most prudent financial advisers.

However, I am particularly concerned by the vague, subjective nature of the GAAR and the potential for our clients and us as advisers to have to second guess every action, not just in the light of the interpretation of legislation but these vaguer measures. For example, could HMRC argue that sharing bank deposits between spouses is gaining a “tax advantage” and subject to HMRC challenge?

The eternal cynic, I wonder if it is the start of an attack on more basic and prudent planning.

Alistair Cunningham is financial planning director at Wingate Financial Planning


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  1. I believe it was Lord Clyde not Carr.
    Jim Carr

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