Closure of loopholes should benefit 'fair players'
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Your support makes all the difference.A clampdown on tax avoidance was announced as part of a package of reforms aimed at closing loopholes exploited by City financial institutions and other employers.
A clampdown on tax avoidance was announced as part of a package of reforms aimed at closing loopholes exploited by City financial institutions and other employers.
The Government said the measures would "produce additional revenue, deliver significant savings and ensure that the burden of tax does not fall unfairly on taxpayers who play by the rules".
Among the moves announced by the Chancellor is a crackdown on schemes whereby financial institutions and other large businesses have used employee benefit trusts to award substantial bonuses to individuals. Such schemes allowed payments to employees to qualify for corporation tax relief because they were deemed to be for the welfare of employees. Instead of attracting tax at a rate of 40 per cent with national insurance, the money in the trust was paid out in the form of a dividend, which attracted tax at the rate of 25 per cent.
Under the rules first announced in the pre-Budget report of last year and confirmed yesterday, the payments will not be eligible for the corporation tax deduction until an individual has been taxed on the benefit.
The Government also published legislation reversing a recent court case that enabled holders of unapproved share options to reduce their tax liability on sale. Accountants said the move meant that the brief window of opportunity had been closed.
A further measure aims to counter avoidance of capital gains tax using offshore trusts. This chiefly concerns children of wealthy families that have, historically, used trusts based offshore to protect the family fortunes. The move announced yesterday is the latest in a series of measures designed to ensure that UK beneficiaries are taxed when they receive payments from such trusts.
John Rayer, of the accountants BDO Stoy Hayward, said the important message of this attack was that, while businesses were being encouraged to reward employees through share schemes and similar arrangements, the Government would crack down on any attempts to manipulate the value of these shares.
Mr Rayer added that the move against employee benefit trusts and certain share schemes was aimed at high earners who were currently taxed at a combined income tax and national insurance contributions rate of more than 50 per cent.
In the property field, the Chancellor moved to halt the use of companies and limited partnerships subject to lower rates of stamp duty to hold property assets, as part of a series of measures to reduce the avoidance of stamp duty.
Business groups said that the changes to the way in which stamp duty was calculated on commercial property leases – which will raise an estimated £200m extra a year for the Treasury – amounted to a new "stealth tax".
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