The General Anti Abuse Rule is coming into force this year, effective from Royal Assent. This may sound barely relevant to the ordinary taxpayer but I fear it will end up affecting nearly everybody.
The basic idea behind the GAAR is that taxpayers are not free to reduce their tax bills by any lawful means, but only in a manner which is not regarded as abusive. An abusive arrangement is one which cannot reasonably be regarded as a reasonable course of action.
Anything falling within this description will be subject to counteraction to remove the intended tax advantages. This has no effect on the existing legislation which may continue to be used to challenge a particular transaction. The GAAR only applies to arrangements which are entirely lawful and would otherwise have been effective.
I started to imagine myself playing cricket. The opposition captain tells me that a batsman in my team will be out if he is caught. However, if he hits the ball where there is no fielder, the batsman will still be out because had they put a fielder in the right place, he would have caught it. But this rule does not apply to his batsmen. Um.
Anyway, to help our understanding of how it will operate, HMRC have issued some lengthy guidance. It is beautifully written with many examples but you do need to stand back and think what some of these words really mean. One example should suffice. HMRC explain that there would be no challenge or allegation of abuse in situations where the law deliberately sets precise rules or boundaries. They say that:
"If the statute specifies a particular period or set of conditions quite precisely, then taxpayers are entitled to assume that they are on the right side of the line if they have satisfied the statutory condition and there is no contrivance about what they have done."
On first reading that looks entirely reasonable but actually what it means is that you are only protected if you satisfy the statutory conditions by accident. If you deliberately arrange things so that you satisfy the statutory conditions then you must have contrived to do so - and that is objectionable as an abuse.
Despite the above reservations, the Guidance Note is full of examples involving a wide range of the planning arrangements which HMRC confirm would not be regarded as objectionable. That is extremely welcome. However, the difficulty (as always) is where to draw the line. We all know an elephant when we see one, but what if it is not an elephant, but something else - for example a big thing with four legs, a head and a tail, like a wooden horse.
In fact, I think a Trojan horse is probably about right.