Trust moves will breed avoidance

‘I predict [that the trusts move] will be a breeding ground for tax avoidance
in the coming months and years, because it is bad legislation, it has been ill
thought through and there have been amendments on the hoof by government,’ Chas
Roy-Chowdhury, head of taxation at ACCA, said at the Insider Business Club
debate.

The House of Lords economic affairs committee criticised the government last
month over the way it had handled some of the anti-avoidance measures, announced
in the Budget this spring.

Following intense lobbying, the government altered its proposals to allow
taxpayers to leave money in trust to their spouses without facing a tax charge,
and to reduce the tax burden on trusts set up to pay out after a child reaches
18. A trust paying out at age 25 will be charged just 4.2%.

But despite some suggestions of a u-turn, some advisers believe they have
only extracted modest, and inadequate, concessions on the issue.

The panel also discussed the government’s aim of eradicating tax avoidance by
2008, with none of the advisers who spoke considering the goal achievable.

John Cullinane, president of the Chartered Institute of Taxation and a
Deloitte partner, said: ‘It is not in their interest to do so because they like
to blame everything they do on someone else.’

Last week we revealed that planned guidelines on avoidance are set to be
deliberately vague, a move criticised by advisers.

‘These hallmarks should be part of the process of creating more clarity on
where boundaries are to be drawn. Clearer legislation also has a part to play;
the product of consultation and perhaps with more occasions when we get proper
statements of the aims/targets of the legislation,’ said John Whiting, partner
at PricewaterhouseCoopers.