The avoidance in a diversion scheme is normally deliberate.
The devices work by structuring what is, in essence, a
trading transaction in land in such a way that the gain is realised
by a person who is not within the charge to UK Income Tax.
An example is the purchase of land by a UK resident, for
eventual sale to a third party purchaser, with an intermediate sale
to a (probably wholly owned) non-UK resident tax haven company. The
lion's share of the overall profit being diverted to the haven
company.
Sugarwhite v Budd [1988] 60TC679 is an example of such a
diversion scheme.
Another example of the same device, involving only UK residents,
is the 'gifting' of land, by a UK land dealer, to a connected
individual as an intermediate step between its acquisition by the
land dealer and its eventual disposal, by the recipient of the
gift, at a profit.
The gifting element prevents us from contending for Schedule
D Case I on the recipient of the gift when the recipient sells it
(see William v Davies [1945] 26TC371) and the 'profit' remaining in
the recipient's hands would, without ICTA88/S776 (2)(a), be
assessable only as a capital gain. The entire transaction is, in
essence, a trading transaction. The land has passed through the
hands of the connected individual merely to reduce the overall
Schedule D Case I charge.
In both examples we would also consider invoking ICTA88/S776
(8) in order to assess the 'provider of the opportunity' (see
BIM60335).
