The Financial Secretary to the Treasury, Stephen Timms, has announced details of legislation to counter a number of tax avoidance schemes using the sideways loss relief and double tax relief rules. The legislation will be effective from 21 October 2009 and is intended to impact on loss makers who have entered into avoidance arrangements.

Sideways Loss Relief

Here, a scheme generates losses in a professional partnership for offset by users of the scheme against their other income or capital gains by way of ‘sideways loss relief’.  The new anti-avoidance legislation will counter relief in such cases.

Double Tax Relief

HM Revenue and Customs has been notified that unauthorised Unit Trusts are being used to avoid restrictions on double tax relief and to generate repayments of tax that the UK Exchequer has not received.  To deal with this, new legislation will be introduced with the effect that such distributions will be treated by the recipient as overseas income under deduction of overseas tax.

Further legislation is intended to counter a scheme which involves companies using manufactured overseas dividends instead of real overseas dividends in order to disapply the anti-avoidance rules in the double tax relief legislation.  The changes will prevent credits for notional overseas tax from being treated more favourably than tax credits on real dividends.

Finally, regulations are also being introduced to counter UK manufactured interest payments from being used to avoid tax under the rules relating to controlled foreign companies by artificial generation of double tax relief.  The recipient will now be taxed on the amount of manufactured interest it receives with no relief for any notional tax credit.

Posted on 05 Nov 2009