The GAAR Advisory Panel has published its third opinion and said in it that tax planning arrangements which sought to allow for the tax-free extraction of cash from a close company through the use of trusts and which involved "contrived and abnormal steps" was not a reasonable course of action having regard to the loans to participators and company distribution rules.

The tax planning which was considered in this opinion involved a loan of £460,000 from a close company to its sole shareholder. In order to eliminate both the loans to participators tax charge on the outstanding loan and an income tax charge on either a distribution or the release of the loan, the shareholder acquired a settlor's interest in a trust funded with assets of £500,000 and then received a loan from the trust for £500,000. The shareholder then sold the interest in the trust to his company for £500,000 and used the purchase price to extinguish the outstanding loan.

The GAAR Advisory Panel held that, while there was no direct distribution involved, "the only purpose of the Trust is to bring into being an asset, without which there would be no doubt as to the application of the distributions legislation". As a result, it had no problem in confirming that the transaction was not a reasonable course of action in the circumstances.