Simplifying anti-avoidance legislation - Chapter 1: Introduction

1. The Pre-Budget Report (PBR) 2007 launched the Anti-Avoidance Simplification Review, to consider how anti-avoidance legislation can best meet the twin aims of simplicity and revenue protection.

2. The PBR document set out the Government's views on how simplification can best be achieved in anti-avoidance legislation:

  • through ensuring new anti-avoidance legislation is clear, effective and well targeted; and
  • by simplifying areas of existing anti-avoidance legislation.

http://www.hm-treasury.gov.uk/pbr_csr/documents/pbr_csr07_tax.cfm

3. At Budget 2008, HMRC published an update on the Anti-Avoidance Simplification Review (PDF 219K). This included a summary of the results of the initial engagement with business and professional stakeholders. Businesses and their advisers accepted the need for Government to ensure that anti-avoidance legislation provides effective protection to the Exchequer. However, they wanted legislation that is clear, well targeted and easier to use. They also wanted to be able to understand the tax consequences of complex commercial transactions with reasonable certainty.

4. Building on these discussions, the Budget update identified the following areas to consider for potential simplification:

  • the 'Transactions in Securities' legislation (sections 703 to 709 Income and Corporation Tax Act 1988 (ICTA) and Chapter 1 Part 13 Income Taxes Act 2007 (ITA));
  • certain rules relating to shares acquired by employees (Part 7 of the Income Tax (Earnings and Pensions) Act 2003);
  • the rules to prevent losses (both capital and income) being transferred from one group of companies to another (Schedule 7A Taxation of Chargeable Gains Act 1992 (TCGA) and sections 768 to 769 ICTA);
  • the rules to prevent value being shifted from one asset to another for capital gains purposes (value-shifting and depreciatory transactions rules) (sections 30 to 34 and 176 and 177 TCGA);
  • the tax treatment of property lease premiums (sections 34 to 39 and sections 87 and 87A ICTA and sections 60 to 67 and sections 276 to 306 Income Tax (Trading and Other Income) Act 2005); and
  • the alignment of various rules preventing relief for transactions carried out for 'unallowable purposes'.

5. This update provides further information on three of these areas: the Transactions in Securities legislation, the alignment of the unallowable purposes rules and the rules on Employee-Related Securities. These areas are covered in more detail in Chapter 2 - Specific Reviews.

6. In the Budget update, HMRC indicated that informal dialogue on these three areas would commence over the summer. This paper launches that dialogue, which will involve workshops and one-to-one engagements. There is also a wider opportunity to take part and provide feedback through the questionnaire contained in Chapter 3 - Feedback Questions.

7. It is envisaged that further formal consultation on these areas will take place at either PBR 2008 or Budget 2009, depending on the progress made in each review.

8. Work in relation to the other areas of legislation mentioned at Budget is at an earlier stage and a more detailed update on progress will be provided at PBR 2008.