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PBR aims to annul avoidance

25 November 2008
Issue: 4184 / Categories: News , PBR 2008 , Pre-Budget Report 2008 , Admin
Several new measures introduced

As might have been expected, the 2008 Pre-Budget Report includes measures against avoidance. Not all announcements are new.

The notes relating to sale of lessor companies, plant and machinery leasing, and leasing avoidance by film partnerships referred to announcements made on 13 November.

New measures include the following.

Authorised investment funds

An anti-avoidance provision will prevent the corporate streaming provisions in the authorised investment funds (AIF) regulations from applying at all to investors for whom an AIF dividend is be a treated as a trading receipt. This will block attempts to circumvent the current anti-avoidance rules.

This change will mean that the only investors remaining within the scope of the current rules are general insurance companies for whom an AIF dividend is not treated as a trading receipt. This has effect on and after 1 January 2009.

Employment-related securities

As part of the simplification review, legislation will be introduced in Finance Bill 2009 to simplify certain tax rules that apply to employment-related securities or shares (ERS) acquired by employees for less than market value, and to repeal an outdated anti-avoidance provision relating to transactions between associated persons.

The changes will have effect for transactions occurring on or after the date that Finance Bill 2009 receives Royal Assent. The repeal will have effect on and after the same date.

There are three proposed changes to Chapter 3C of Part 7 of ITEPA 2003.

If an employee receives shares from his or her employer which are to be paid for in instalments, then sells the shares before all of the instalments have been paid, a tax charge can arise, even where the employee has made no profit overall on the shares. The first of these changes removes this tax charge.

However, if the employee is released from any requirement to pay the instalments then a tax charge may still be imposed. The second change removes a tax charge that can arise on the sale by an employee of nil or partly-paid shares, even where the employee has made no profit overall on the shares.

The third change concerns employees who have received shares from their employer, and a scrip issue or bonus issue is made so that the employees receive new shares in proportion to their existing shareholding.

Although the employees have received no extra value overall, because the value of their existing shares will have fallen, a tax charge under Chapter 3C can arise in some circumstances. The existing provision in s 421D(3) is to be extended to cover shares where they would otherwise be taxed under Chapter 3C. This change will ensure that the correct tax charge (which may be nil) will arise.

TA 1988, s 774 was originally enacted in 1960. It was aimed at transactions which attempted to exploit mismatches in the tax treatment between a company carrying on a trade of dealing in securities and an associated non-dealing company. 

The avoidance involved a dealing company seeking a tax deduction from trading income for a write-off of an amount due from an associated 'non-dealing company' which did not suffer tax on the benefit from the write-off.

Section 774 is now redundant because of the legislation enacted in FA 1996 on loan relationships, and FA 2002 on derivative contracts. It is therefore being repealed.


Finance Act 2008 and subsidiary regulations contained improvements to the way scheme reference numbers (SRNs), issued by HMRC for disclosed tax avoidance schemes, are passed on from scheme promoters to end users.

Following discussions with business, further changes will be made to simplify and improve the procedure by which scheme users report a SRN back to HMRC.

The changes will have effect for tax return periods beginning on or after 1 April 2009.

The main change concerns the time when a scheme user is required to report a SRN. Currently, a user must normally first report a number in the tax return for the year, or accounting period in which it is received.

The change will mean the SRN is now first reported in the tax return for the year or accounting period in which the scheme is implemented. There will be no change to the requirement to report a SRN for each subsequent year until the expected tax advantage ceases to apply.

Other changes will extend and clarify the circumstances in which the user is to report a SRN on form AAG4 rather than on a tax return.

These will include:

  • where the user is an individual who makes a freestanding claim for loss relief which is affected by the use of the scheme; and
  • where there are insufficient boxes on the return for the user to report all of the SRNs required to be reported.
Issue: 4184 / Categories: News , PBR 2008 , Pre-Budget Report 2008 , Admin
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