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New rules will target exploitation of property business profits
The government has shut down an avoidance scheme aimed at reducing the tax liabilities of companies through the exploitation of losses.
It was marketed as a way for firms to reduce their tax payments by generating artificial loss relief from a property business; users offset losses against corporation tax profits.
The scheme, which was brought to HMRC’s attention last month, made use of rules that automatically allow certain types of expenditure to be deducted from profits.
Legislation will be included in the 2013 Finance Bill to introduce a targeted anti-avoidance rule (TAAR) to the provisions governing the relationship between the rules that prohibit deductions from profits of a trade or property business and the regulations that allow the same, specifically ITTOIA 2005, s 31 and s 274 and CTA 2009, s 51 and s 214.
The TAAR will apply where a permissive rule would otherwise allow a deduction in calculating the profits of a trade or property business for an amount that arises from tax avoidance arrangements. The effect will be that the rules prohibiting a deduction take precedence over those allowing a deduction.
