PSI2.2.1 - Taxation Background: Tax Avoidance - General

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

Tax avoidance is the reduction of a tax bill by legal means. The establishment of a retirement benefits scheme provides scope for reducing tax liabilities and simply claiming the reliefs which the law confers upon an approved retirement benefits scheme could be viewed as tax avoidance in the widest sense. But it is legitimate avoidance so long as the contributions are not excessive in relation to the benefits to be provided and the scheme is not otherwise used to obtain an unacceptable tax advantage. Nevertheless schemes can be used to obtain tax advantages which Parliament did not intend to give. This can happen even when the contributions and benefits are within our limits. The following paragraphs describe some of the problems which may be met and our sanctions. But guidance on this subject cannot be comprehensive. Tax avoidance techniques can be very sophisticated, often involving the exploitation of novel or unique situations to avoid, reduce or delay the taxation of profits, gains or earnings. Let the Divisional Manager see the case if you suspect a scheme is involved in a type of avoidance not covered here.