Tax avoidance once again falls under the spotlight

Entrepreneurs’ relief – for many years sole traders and partnerships have been able to incorporate their businesses selling the value of the business including goodwill to the new corporate. The gain is taxed at 10 per cent, the proceeds remain on loan to the company as a directors’ loan and it is then repaid with no further tax being payable.

This procedure was used when retirement relief was available and then taper relief and more recently entrepreneurs’ relief. With effect from 3 December 2014 any goodwill sold to a close company connected with the seller will be taxed at 18 per cent or 28 per cent, depending on the personal circumstances of the vendor.

Restriction on loss relief for banks and building societies – the losses built up by the financial institutions during the recession when many of them were supported by the government are sufficient to shelter profits for a number of years. The proposal in the Autumn Statement is to restrict the loss relief to 50 per cent of the profits, leaving 50 per cent in to charge.

Diverted profits tax – a new tax will be introduced to charge company profits diverted to another country by aggressive tax planning techniques to be taxed in the UK at 25 per cent from 1 April 2015.

Investment managers disguised fee income – from 6 April 2015 legislation will be introduced to ensure that sums received by investment managers for their services are charged to income tax.

Miscellaneous loss relief – individuals who are party to tax avoidance arrangements aimed at giving tax relief for losses arising on miscellaneous transactions will not be able to offset the losses against other income. Miscellaneous income includes post cessation receipts, rent from UK electric-line wayleaves, gains from contracts for life insurance etc.

There will be further consultation on marketed avoidance schemes looking at promoters and serial avoiders.