Anti-Avoidance Loopholes Closed since 2010

Plain English
description of
problem we
solved

When the loophole

closure came into
force

Description from HMT/HMRC

Tax which this affected

A hedge fund
manager could
pay less tax on
their shares than
their cleaner paid
on their wages.

We stopped this in
the first Budget of this
Parliament

The rate of capital gains tax was raised to 28% for

individuals earning over the basic rate of income
tax.

Capital Gains Tax

Foreigners didnt
pay Capital Gains
Tax when they
sold their UK
houses

Will start from 6 April

this year

Non residents will be liable to CGT when they

dispose of UK residential properties.

Capital Gains Tax

Thousands of the
richest
homebuyers
didnt pay stamp
duty.

Introduced legislation to address three SDLT

avoidance risks. The changes cover avoidance
techniques that use the subsales rules, the
Alternative Finance reliefs and the rules for
exchanges of land. These techniques have been
used to attempt to avoid tax on both residential
and non-residential property transactions,
including on high value property transactions.

Stamp Duty

Companies could
club together to
reduce their
overall tax bill by
using loans
between

Introduced legislation to prevent tax avoidance

involving groups of companies using intra-group
loans or derivatives to reduce the groups tax bill.

Corporation tax and tax on Controlled

Foreign Companies

Immediate fix
effective 6 December
2010, with a generic
approach coming in
force in July 2011

The Government introduced legislation to prevent

a particular avoidance scheme which used zero

themselves

5
6

coupon convertible loans through special purpose

overseas subsidiaries to mitigate both UK
Corporation Tax and CFC tax. Targeted legislation
stopped this abuse from 6 December. Following
consultation the Government introduced
legislation to counter group mismatch schemes
which adopted a more principled approach against
companies using intra-group loans or derivatives to
reduce their tax liabilities;
Prevented individuals from taking advantage of a
tax loophole in the double taxation arrangements.

Companies could
get relief quicker
by making
shortcuts
Banks tried to
claim repayments
of tax that had
never been paid
to them in the
first place

12 August 2011

Countered a marketed avoidance scheme designed

to accelerate capital allowances claims and obtain
advantageous early tax relief;

Income tax and Corporation tax

15 September 2011

Closed a scheme involving Manufactured Overseas

Dividends to obtain payment of tax that the UK
Exchequer never received.

Income Tax/Corporation tax

Banks didnt pay

tax on all profits

5 December 2012

In the schemes, a company lends shares and

instead of receiving a manufactured payment
which is taxable as a trade receipt receives the
same value in a different form which is nontaxable.

Corporation Tax

Businesses paid
employees using

From 6 April 2011

Introduced legislation to target arrangements

intended to disguise remuneration using vehicles

Income tax/NICs

The scheme could have resulted in companies,

particularly in the financial sector, offsetting or
claiming repayment of UK income tax that had in
fact never been paid. This could have led to a
significant loss of tax receipts, had the Government
not taken action.

trusts so they
could pay less
taxes

such as Employee Benefit Trusts. Where a reward

or a loan is provided or earmarked for an
individual, via a third party, an income tax and NICs
charges arise and the employer is required to
account for PAYE.

10

Companies
played with
accounting rules
to make losses
appear out of thin
air

6 December 2010

Introduced legislation to prevent avoidance of

corporation tax by addressing schemes where a
company derecognises certain amounts involving
loans and derivatives in its accounts. The legislation
was amended to require a company to recognise
differences between the accounting and fair value
of a derivative as a credit for the period in which
tax avoidance arrangements are entered into.

Corporation tax

11

Investment
companies
changed their
historic accounts
so they were in a
different
currency, saving
them paying as
much tax

Announced on 6
December 2010, and
took effect for periods
commencing on or
after 1 April 2011

Introduced legislation to counter avoidance

involving investment companies retrospectively
changing the functional currency they prepare
their accounts in for tax purposes, saving around
50m per annum.

Corporation tax

New anti-avoidance
legislation was
introduced with effect
from 1 April 2011.
Previous rules phased
out by transitional
provisions ending 1
April 2013.

Published draft clauses to replace the substantial

donors to charities legislation. This anti avoidance
legislation denies relief where the donor enters
into arrangements with the main purpose of
obtaining a financial advantage from the charity.
The new rules will commence from April 2011.

12

13

Large businesses
would combine
the sale of
printed things
with other things
just to reduce
their VAT bills

From 19 July 2011

16

VAT

Introduced legislation to amend the degrouping

charge rules to ensure that they operate as
intended. This change may affect companies that
cease to be a member of a group.

14
15

Introduced legislation to withdraw zero-rating for

ancillary printed matter where it is connected to
the supply of a differently rated service.

Banks tried to
reclaim tax they
never paid in the
first place
Because of the
financial crisis
debt issued by
banks became
cheap, giving
banking groups a
chance to buy it
back at a discount
to face value. This
gives rise to an
economic profit
that should
be taxed - but a
particular group
artificially
structured the
buy-back so that

Announced on 27
February 2012 with
immediate effect

Large financial institutions using an Authorised

Investment Fund to generate the repayment of tax
that has never been paid.

Corporation tax

Announced on 27
February 2012 with
immediate effect.

The Government announced that legislation would

be introduced to close the scheme retrospectively.
- Debt buy back. 500m of tax at risk

Corporation tax

no charge arose

17

Rich people
claimed losses
from property
businesses to
remove tax on
their real income

[13 March] 2012

Acted to counter avoidance involving losses from a

property business set against general income,

Income tax

18

People could
avoid paying VAT
on things if they
bought them
using vouchers

Judgment released 3
May 2012

Acted to counter avoidance and protect revenue to

guard against potential artificial avoidance of VAT
though the use of face value vouchers.

VAT

Creating losses
out of thin air

December 2012

AS - Tax mismatch scheme - which reduce

Corporation Tax liability through asymmetric tax
treatment of loans or derivatives.

Corporation tax

December 2012

AS - Property return swaps - which convert capital

losses into income losses.

Corporation tax

We stopped this from

5 December 2012

Avoidance using the relief for non-trade patent

royalties was stopped by abolishing the redundant
relief,

Income tax

19
20
21

People could
make artificial
losses to reduce
their tax liabilities
using an obscure
and not needed
tax relief

Loophole closed 10
May 2012

Closed SDLT subsale loophole.

22

Company creating
artificial cost to
eliminate tax
liabilities

[21 December] 2012

Legislation to prevent individuals and companies

exploiting trading and property business loss relief
to obtain a tax reduction.

Corporation tax, Income tax and Capital

Gains tax

23

Rich people
borrowed money
to buy things they
didnt need to
pay inheritance
tax on so they
avoided paying
tax twice

From July 2013

Closed an IHT loophole deduction of tax liabilities

which allowed people to have a double relief
against inheritance tax

Inheritance Tax

24

Stopping
individuals using
loans to get
money from their
companies
instead of a salary
they would have
to pay tax on

March2013

Closed loans to participators loopholes

Corporation tax /Inheritance Tax

25

Companies could
give losses to
another company
to avoid tax

FA13

Closed CT loss relief loopholes [this is a real tax

point!] Diverted profits into a CFC (deliberately) so
that when they came back they didnt count
toward gross profits for the purposes of the
amount of relevant reliefs that could be
surrendered as group relief.

Corporation tax

26

Companies were
sometimes

FA13

Targeted anti avoidance rule pertaining to loss

reliefs

Corporation tax

bought and sold

only to reduce tax
bills
Closed SDLT subsale deferred completion loophole

27
28

Individuals
claimed they had
paid more than
they had for
something

October 2013

Prevention of 2 forms of tax avoidance by use of

rules known as compensating adjustments

Corporation tax /Inheritance Tax

In the first, partnerships paid companies owned by

the partners for services at cost price and used the
tax rules to create a mark-up which is not actually
paid, but which reduces the income tax bill of
individual partners.
In the second type of case individuals lent money
to a company in which they were a shareholder,
charging excessive interest payments on which
they did not pay full income

29

Groups of
companies could
say the world
wide debt cap did
not apply to some
or all of their
companies

30

Companies could
shift their profits
to tax havens

1. From 11
December
2012
2. From 5
December
2012

Legislation to make the rules exempting group

treasury companies and defining the members of
the group to which the debt cap rules apply more
robust.

Corporation tax

Stopped companies from using derivatives to

transfer profits

Corporation tax

31

Big corporations
shifted UK profits
to low tax
countries

From AS 2013- 5th

Dec 2013

Controlled Foreign Companies: profit

shifting

Corporation tax

32

Companies could
say theyd been
taxed abroad
when they hadnt
so that they
didnt pay tax
here either

From AS 2013- 5th

December

Double taxation relief: revenue protection

(DTR)

Corporation tax

33

Non-doms can
split their
employment
contracts to avoid
UK tax

From April 2014

Stopped non-doms using separate UK and non-UK

employment contracts with the same employer to
create a tax advantage.

Income Tax/NICs

34

Businesses could
avoid tax by
treating workers
as self employed
because they
involved a third
party

This was stopped in

April 2014

Strengthened the agency rules to prevent

employment tax avoidance by employment
intermediaries facilitating false self-employment or
off-shore intermediaries supplying UK workers to
UK based companies

Income tax and NICs