Avoidance – Offshore tax dodge closed

The government surprised accountants last week by announcing it is taking immediate action to reduce tax avoidance before Tuesday’s Budget.

The measure, which covers transactions from last Friday, hits those who bring an offshore trust to the UK and then dispose of their interest in it to a third party in a bid to avoid capital gains tax.

Dawn Primarolo, the financial secretary to the Treasury, said: ‘The government is determined to stem tax leakage by detecting, deterring and countering tax avoidance. We will therefore take action to prevent avoidance of tax by those who dispose of an interest in, or originating from, a trust which has ever been an offshore trust.’

Although the government has made clear its determination to tackle tax avoidance and evasion, it broke with normal pre-Budget secrecy by announcing the measure.

The pre-emptive strike is understood to follow Inland Revenue information that several taxpayers were planning to use the measure before Budget day – which could have cost the Treasury hundreds of millions of pounds.

John Whiting, Price Waterhouse’s head of direct tax, said: ‘This scheme has been around for years, but hardly anyone uses it. The government must have got wind of some vast sum about to be pushed through it.’

Under current law, gains realised on the disposal of an interest in a trust are exempt from capital gains tax. But the exemption does not apply when the interest is disposed of when the trust is an offshore.

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