Days of tax planning could be numbered

We have already seen an attempt to introduce a general anti-avoidance rule (GAAR) at the start of this parliamentary term and there have been mutterings about the possibility of a mini-GAAR within the technical note on CGT rollover relief for shares and there has effectively been a mini-GAAR introduced in the year 2000 Finance Act for Stamp Duty.

My view of the government’s stance on a GAAR is that the chancellor considers it to be a fashion statement – why should we not have one for the UK if a number of other tax jurisdictions have them? While I hope I am wrong I suspect he will have his wish quite soon after a return to number 11 Downing Street next year.

It will happen either in the form of a full blown maxi-GAAR or by way of a number of mini-GAARs scattered strategically across all areas of tax legislation. The plan a few years down the line, when a critical mass of mini-GAARs has been achieved, will then be to consolidate them all into a single maxi-GAAR.

Hand in hand with the government’s wish to see everyone maximise their tax liability is a desire to reform each area of taxation to ensure that the Exchequer takes a cut from everybody.

For example look at what happened to CGT.

Small business owners were able totally to avoid paying any CGT. When the Exchequer decided to make the tax even more complex than it was already, the government took the opportunity to ensure that everybody paid some tax.

ACCA was vocal in its opposition to the adverse impact of the changes on small businesses but was informed by the Inland Revenue that this point had been put to ministers who considered that everyone should pay some CGT.

If the name of the game is that everyone should pay some tax one does not need to look too far or think too deeply to see where the axe is likely to fall next time – although it will not be until after the election.

That is Inheritance Tax.

IHT is the only tax left which has not been subjected to the magic wand of “reform” of some sort. As a result, it is still possible for individuals to avoid paying any tax at death.

Where some equity is applied within the tax system is in the current recognition that an individual’s estate has been built up from income which suffered tax at an earlier stage and hence should not be taxed again on being passed on to children and grandchildren.

This policy recognises that one of the greatest motivators for individuals to create wealth and benefit the general economy is if they can pass that wealth on without it being subjected to tax.

There should not be reform to the system so that everyone is taxed on their estate. My view is that the tax should be made fairer for those whose main assets at death are their houses. The same CGT-type principle private residence exemption should be applied to every individual’s house.

It is not right that an estate should be dragged into the 40% IHT tax net purely because the deceased’s house has risen in value above the nil rate band. When ACCA put this proposal forward, we were advised by the Inland Revenue that the government considers that IHT is already too generous.

All I can say to that is that the government has had its wakeup call over fuel taxation. This demonstrated the general public’s wider disenchantment with governments not allowing individuals to keep enough of their hard earned money.

Is there a need for the finger to come off the snooze button?

– Chas Roy-Chowdhury, ACCA’s head of taxation and predicts a short term future for tax planning.

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