HMRC strangles avoidance scheme at birth
Government moves to rule out scheme before it even goes on sale, foreseeing huge potential losses
Primarolo: ‘unacceptable and unfair’
The government has moved to close down what it calls a ‘major tax avoidance
scheme’ worth hundreds of millions of pounds, a week before it was due to go on
sale.
Paymaster general Dawn Primarolo is this morning to formally shutdown the
scheme before it was expected to be marketed to customers, sources at HM Revenue
& Customs said.
The scheme involves the purchase of a dividend stripped from the share to
which it was attached. The purchaser would use the tax loss on the purchase
before selling the dividend on again. A weakness in the rules would then have
meant the dividend sale did not create a taxable gain.
The scheme was expected to be marketed to sophisticated financial services
providers such as hedge funds and others, with the Revenue – calculating the
huge losses it would have incurred – moving to strangle the idea at birth.
‘We don’t think it would have worked,’ a Revenue source said, but has moved
to close it down anyway before it was tested in the courts.
The scheme exploited a weakness in the S730 of the Income and Corporation
Taxes act, the government said, and the relevant subsection of the act would be
repealed, it added, effective from today.
Paymaster general Dawn Primarolo said: ‘The use of avoidance schemes such as
this which get around the intention of Parliament is unacceptable and unfair to
the majority of taxpayers who pay their fair share.’