For a recent round of presentations I was asked to look back 20 years at what I considered to be the key developments of relevance to the financial planning process in taxation and pensions. The broad reason for doing this was to see if the past could be used as any guide to the future.
My, how time flies. My journey down memory lane from its 1996 starting point reminded me of just what a “journey” we have been on.
So what did this time travel adventure reveal? Well, for both tax and pensions, the amount and pace of change has been relentless. The detail has also been impressive: pages and pages of legislation, regulation, reported litigation, observation and consultation.
And on the last point, by the way, the trend to consult before creating legislation is one to be applauded. It seems to be an embedded process now for the bigger and more complex areas of change, and that should increase the chances of better outcomes.
For me, the most fundamentally important development in tax (which will come as no surprise to regular readers of my column) is the effective ending of the market in aggressive tax avoidance schemes: those designed to be within the letter of the law while defeating the intent of legislation.
The development and success of “purposive interpretation” in litigation to help HM Revenue & Customs to victory was one started more than 20 years ago in standout cases like WT Ramsay Ltd v CIR  and Furniss v Dawson .
Clearly, HMRC was unhappy with leaving the application of this principle to the courts and needed to “up its game” in light of the financial pressures and increased public sector debt brought upon the Government as a result of the global crisis. As such, we have seen the relentless surge of targeted anti-avoidance provisions, even more (successful) litigation and, of course, the 2013 introduction of the potentially powerful (but to our knowledge as yet unused) general anti-abuse rule.
In the last three years, we have also seen the development of the accelerated payment notice and the accompanying (and continuing) expansion of the “universe” of schemes requiring a disclosure of tax avoidance scheme reference number. The next “frontier” for Dotas is inheritance tax, though it seems likely most schemes founded on financial products – for example, loan trusts and discounted gift trusts – are to be spared.
All this has led to the pretty much complete drying up of any demand for aggressive avoidance schemes. The war has been won. And the boundaries will continue to be maintained through multi-faceted action, including, where necessary, international collaboration to combat large scale global profit shifting and tax base erosion.
Meanwhile, on inheritance tax, the big ticket highlights have to be:
- The introduction of the transferable nil rate band in 2007, reducing the need for “use it or lose it” first death trust planning
- The freezing of the nil rate band in 2009 and the radical change to trust taxation in March 2006 from which point we saw the end (or at least dramatically reduced use) of the flexible interest in possession trust as the trust of choice for IHT planning with retail investment products.
- Other important tax developments include the reduction in the rate of corporation tax.
All these changes remind me how easy it is for advisers to miss or not spend the time understanding new legislation, especially in an ever-demanding and time-constrained world. If this becomes the norm, the cumulative effect of getting gradually out of date is that your risk of giving less-than-perfect advice increases.
But do the changes offer a guide to the future? Well, yes, actually. I do not see the financial pressure on “UK plc” reducing any time soon and it is this (as well as the political need to be seen to be doing something about it) that will continue to put high-cost tax relief and losses through tax planning under the microscope.
The result will be a continued focus on past-established norms in tax and pensions with, if necessary, radical but meaningful change in place to reduce tax outflow and increase tax inflow. Next week, pensions.
Tony Wickenden is joint managing director of Technical Connection. Follow him on Twitter @tecconn