UK Government Moves To Block Avoidance Schemes

by Jason Gorringe, Tax-News.com, London

08 April 2009

The UK government has announced that it will introduce new legislation in the forthcoming Finance Bill to close off two income tax avoidance schemes, one involving offshore life insurance polices and the other employment-related losses.

According to a written ministerial statement from Financial Secretary to the Treasury Stephen Timms, the first scheme purports to create income tax loss relief from offshore life insurance policies that can be set against other taxable income. However, the government "does not accept that the schemes have the effect sought or that there are any circumstances in which income tax loss relief can arise on life policies," stated Timms.

"To put the position beyond any doubt, legislation will be introduced in the forthcoming Finance Bill that will prevent income tax loss relief from being available from transactions on offshore life policies," the statement added.

This change, effective from April 6, 2009, will ensure that claims cannot be made for income tax loss relief from offshore life insurance policies relating to the years 2009/10 onwards. Furthermore, it will ensure that tax deductions will not be allowed for the years 2009/10 onwards even if the loss related to a previous year.

The change will also have effect from April 1 to all new offshore life insurance policies. It will also apply to existing offshore policies which on or after April 1 are wholly or partly assigned to the person claiming a deduction, become used as security for a debt, or are varied so as to increase the benefits secured.

HM Revenue and Customs also announced recently that it has become aware of an "artificial and aggressive avoidance scheme" that seeks to abuse tax reliefs available for employment-related losses incurred by employees and former employees. Legislation inserted into the 2009 Finance Bill will prevent loss relief being allowed where liabilities relating to an employment are incurred by employees and former employees for the main purpose of the avoidance of tax.

The legislation will be effective as of January 12, 2009, but, as the government has previously attempted to assure, the new law "will not affect genuine cases where tax avoidance arrangements are not involved."

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