This week's opinion: 16 September 2021

The landmark Eclipse settlement we report elsewhere on this page is a victory for common sense, and all involved, including HMRC, deserve credit for enabling it to happen. There is an old saying ‘those who play with matches cannot complain if they get their fingers burned’ but the situation here goes far beyond this. I have seen examples where the total economic and tax cost of unwinding an investment designed to create tax relief of less than £100,000 was estimated at over £1m. Whatever one thinks about the motives of those who sought to avoid tax through this sort of investment, it cannot be right that such disproportionate results should arise. Some of the investors were certainly facing financial ruin.

The obvious question to me is whether this settlement opportunity creates a precedent. I can imagine, for example, that many of those affected by the loan charge will be looking with great interest at what is happening here. Tempting as such comparisons are, there is a crucial difference. In many loan charge schemes the individuals will actually have received the money on which tax is being sought whereas here the settlement is simply removing a ‘dry’ charge, where tax arose on income which was never received. We do know that in some loan charge cases, loans have been sold on to third parties who are seeking repayment. In those circumstances there is certainly an argument that the loan charge should be waived where the individual does not ultimately have the benefit of funds. 

I am sure that we have not seen the last word on settlement opportunities for historic avoidance schemes.