Taxation - Capital gains clampdown

The Inland Revenue’s special compliance unit has ordered local tax offices to clamp down on several capital gains tax relief schemes, writes Nick Huber.

This comes amid fears that increasingly elaborate relief arrangements are costing the exchequer £500m a year, Accountancy Age has learned.

The order, issued by the Manchester special compliance office, is the first evidence of the Revenue’s clampdown on a capital gains tax loophole involving offshore trusts.

Ministers have already signalled their intention to tackle offshore trusts designed to avoid CGT. Under CGT-avoidance schemes individuals can claim CGT tax relief after purchasing company losses through offshore trusts.

The Revenue estimates that trust schemes, which have been marketed by tax advisers in recent years, could potentially cost it as much as £500m in tax.

Companies can set up bona fide commercial trusts to benefit employees through the use of shares or bonuses, but the Revenue has become increasingly hostile to trusts set up purely for tax reasons.

Special compliance officers visited PricewaterhouseCoopers in May to discuss a variety of tax planning schemes, including trusts claiming CGT relief, though a PwC spokesperson said the visit was not part of an investigation.

The Revenue is also targeting CGT avoidance schemes involving interest-free loans to employees in ‘soft currencies’. The schemes centre on loans in inflationary currencies like the Turkish lira. Employees can sell the loan to a bank in a forward contract and keep the profit tax-free.