CGT clampdown nets HMRC £124m – but could lead to increase in use of avoidance schemes

CGT clampdown nets HMRC £124m – but could lead to increase in use of avoidance schemes

Law firm warns that HMRC focus on entrepreneur’s relief could prompt increase in avoidance scheme usage

Investigations into SMEs and “wealthy individuals” suspected of avoiding capital gains tax (CGT) helped HMRC collect £124m last year, which according to law firm Collyer Bristow could prompt a rise in the use of avoidance schemes.

Changes restricting eligibility, made in the 2015 Budget, have led to higher tax bills. Business owners, most notably of SMEs, are finding it harder to claim entrepreneur’s relief, which reduces the CGT rate from 20% to 10% on sales of all or part of their business.

According to data from Moore Stephens, HMRC has projected that only £2bn of Entrepreneurs’ Relief will be successfully claimed against Capital Gains Tax bills in 2016-17, compared to £3.5bn claimed in each of the two previous years.

As a result of this clampdown, Collyer Bristow has warned that some entrepreneurs may turn to avoidance schemes to reduce bills, risking significant HMRC fines, or in some cases, jail sentences.

James Badcock, partner at the firm, commented: “Capital Gains Tax is becoming a major issue for investors and business owners, which could lead some to seek relief from increased taxation through avoidance schemes.

“In the past, CGT avoidance schemes have included creating artificial capital losses which can be used to offset the tax, whilst others might use offshore trusts and structures to make use of loopholes. However, some will simply fail to declare the sale or transfer of an asset, or undervalue it when reporting to HMRC.”

There are however legitimate ways of avoiding CGT, according to Badcock. “Some individuals may decide to become non-UK resident prior to disposing of their business interest. Others may invest the proceeds in tax approved investments such as through the Enterprise Investment Scheme by which CGT is not paid until the new investment is sold.”

 

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