Tax planning is on the verge of a sea change. When the Finance Bill becomes law in a few weeks time, the general anti-abuse rule ('GAAR') will come into force. This will sit alongside and, where necessary, take priority over all existing tax law, and will apply to a wide variety of taxes including income tax, corporation tax, capital gains tax, inheritance tax, stamp duty land tax and the new annual tax on enveloped dwellings ('ATED').
The GAAR is unique. It will require taxpayers to act in accordance with the spirit of tax law, not simply within the law. The GAAR requires individuals, trustees and companies to consider whether their arrangements are "abusive" if one of the main purposes of those arrangements is to save tax. This requires a rather tortuous analysis of whether the arrangements "cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions". In answering this question, taxpayers must have specific regard to the policy and principles behind the tax rules in question and any shortcomings in the law. These may be far from easy to discern.
The difficulty with the rule is that it does not set a clear boundary between what is, and what is not, acceptable tax planning. That is a highly emotive and subjective question. HMRC have published some guidance which has been approved by an independent Panel. This analyses a number of arrangements and gives a view as to which side of the "abusiveness" line the transactions fall. However, the examples only illustrate what might, or might not, be caught by the GAAR and do not amount to an endorsement of those arrangements by HMRC. The upshot is that, after the Finance Bill is enacted, the GAAR will need to be considered in relation to all arrangements that are structured in a way that saves tax. The examples help to flesh out the relevant questions that need to be addressed and the principles to be applied but it may not be easy to gauge where some arrangements stand.
The GAAR will create difficulties and uncertainty for advisers and taxpayers alike, not least because taxpayers are expected to self-assess and self-counteract the tax advantages that flow from arrangements which fall on the wrong side the line. One thing is certain, the GAAR can not be ignored and we are actively preparing for its introduction with a view to guiding our clients through these uncharted waters, so far as this is possible.