Finance Bill Tracking Service 2007 | Budget 2007 | Budget Notes

BN30 Capital Gains Tax: a targeted anti-avoidance rule

Who is likely to be affected?

1   Persons who take part in contrived schemes or arrangements to obtain a tax advantage from capital losses, including companies, individuals, trustees and personal representatives.

General description of the measure

2   A targeted anti-avoidance rule (TAAR) will be introduced in Finance Bill 2007 to counter schemes to create and use artificial capital losses to avoid tax. The measure will ensure that allowable capital losses are restricted to those arising from genuine commercial transactions.

Operative date

3   The changes will take effect in relation to capital losses arising on disposals on or after 6 December 2006, except in relation to corporation tax where an equivalent rule already has effect.

Current law and proposed revisions

4   The Taxation of Chargeable Gains Act 1992 (TCGA) provides that, unless there is an express rule to the contrary, a capital loss is computed in the same way as a capital gain, and a loss will be an "allowable loss" if a gain arising on the same transaction would have been a chargeable gain (section 16 TCGA).

5   An express exception to this general TCGA rule was introduced in Finance Act 2006. A loss accruing to a company is not an allowable loss if it arises as part of arrangements which have a tax advantage as their main purpose, or one of their main purposes (section 8 TCGA). The intention of that provision is to deter the creation and use of artificial capital losses by companies liable to corporation tax on their chargeable gains.

6   This measure will extend that anti-avoidance rule for companies to persons liable to capital gains tax (individuals, trustees and personal representatives). Where a person has entered into arrangements, and a main purpose of those arrangements is to gain a tax advantage by creating an artificial capital loss, any resulting loss will not be an allowable loss for the purposes of capital gains tax, income tax or corporation tax.

7   The measure will introduce, in the new section 16A TCGA, a general rule covering capital gains tax, income tax and corporation tax, and hence replaces the corporation tax provisions introduced into section 8 TCGA by Finance Act 2006, without changing their effect.

Further advice

8   Draft legislation was published at Pre-Budget Report 2006, along with an explanatory note, draft guidance, and a statement of principle. The legislation and associated documents have been the subject of consultation with interested parties, and revised guidance is being issued today taking account of issues raised during the consultation process.

9   If you have any questions about these changes, or comments on the legislation or guidance, please contact Roger Willoughby on 0131 777 4143 (email: Information about Budget measures is available on the HM Revenue & Customs website at