I have often referred to the Government’s approach to reducing the (more than £35bn) “tax gap” as one founded on GAAR, stars and TAAR. I like the phonetic symmetry.
GAAR refers to the general anti-abuse rule. This is, in effect, the legislative safety net that will help the Government defeat perceived aggressive attempts to flout the intent of tax legislation. It is a formal recognition that the mere words of legislation may not be enough to achieve the Government’s purpose. It is also a clear recognition of the official discomfort in relying on the courts and tribunals to apply a purposive approach to interpretation and of the need to reduce the high costs litigation brings with it. We have not seen much evidence of its application so far, though.
The “stars” part of the “triple approach” to anti-avoidance refers to the naming and shaming of high profile individuals and companies. Jimmy Carr and Gary Barlow, for example, have both had to “take that” in relation to their reputation as fine, upstanding taxpaying members of society.
The corporate versions have arguably come in for more stick. Starbucks has been consistently criticised and even boycotted for low tax payment. To be fair, you can get a reasonable alternative to a gingerbread latte in another coffee house. Be that as it may, try and “do Christmas” these days without access to Google and Amazon. Not so easy.
However, there is no doubt the naming and shaming is tremendously effective to change the public’s perception of what is and is not acceptable. This in turn cuts off demand and, if people are not entering into aggressive tax planning schemes, the Government has less litigation and legislation to implement. Result. Much better for them than extending the DOTAS hallmarks and sending out accelerated payment notices.
Meanwhile, we continue to see many TAARs: targeted anti-avoidance rules. Each and every Budget and Autumn Statement brings more anti-avoidance legislation, and the recent Autumn Statement was no exception. However, because of the now pretty much standard practice of announcing future legislation, consulting on it and then issuing draft legislation, it is sometimes a bit hard discerning (more accurately, remembering) whether Budget or Autumn Statement references to tax change are new or the next step in what is increasingly an iterative process. Not that the latter is not to be welcomed – it is. It makes (or, at least, should make) for more coherent final legislation. We can hope anyway.
A good example of this iterative approach is the move towards the legislation on simplifying so-called relevant property taxation. This started life with a consultation that had the avowed intent of simplifying inheritance tax calculations on relevant property trusts – broadly, any trust other than an exempt or absolute trust. Along the way, as a kind of by-product or consequence, there would be a prevention of the use of multiple nil-rate bands by separate trusts created on different days by the same settlor – the so-called “Rysaffe” strategy – after the case of the same name.
I am not going to go into detail here; I will save that for another article soon. However, what I will say is that the process of consultation, consideration, more consultation, more consideration and then draft legislation has led to a pretty good outcome.
The potential complications of the administration of the proposed new tax calculation regime have been largely dropped and the anti-avoidance provision has ended up being very narrowly focused – at least compared to what it was originally proposed to be with a single settlement nil-rate band (i.e. one nil-rate band for all the trusts created by a single settlor).
That has to be as a result of all the clear and strongly felt representations made during the consultation phase. The main mischief the new draft legislation appears to be targeted at is the setting up during lifetime of multiple nominal value pilot trusts to receive substantial amounts from a testator’s will – such additions constituting “same-day added property” for the purpose of the new legislation.
Broadly speaking, the new provisions would operate to aggregate trusts that were established by the same settlor that receive added property on the same day.
It would, however, seem that multiple trusts established on different days with low value/exempt transfers and no “same-day added property” will continue to be capable of accessing their own nil-rate band. So a “Rysaffe” multiple trust strategy can still work with, for example, loan trusts and large sum assured regular premium life assurance protection policies held in trust.
The draft legislation clearly and specifically excludes life policy premiums from being treated as “added property” for the purpose of the provision.
Tony Wickenden is joint managing director at Technical Connection