HMRC has published two early-stage consultations relating to areas it has identified as high risk. The taxation of unauthorised unit trusts (UUTs) is covered in the first, but the document is mainly focused on obtaining information on the current use of UUTs at this stage. More advanced are the proposals relating to relief for income tax losses:
Relief for income tax losses
HMRC believes that the reliefs for trading, property business and employment losses are most prone to misuse through avoidance. In the process of focusing the rules more carefully, it is hoped that they might also be simplified.
The proposals are one or more of:
- principle-based legislation aimed at relieving only genuine economic losses, income and income from foreign employment duties like the existing residence position;
- capping the amount of loss relief against general income or capital gains in any tax year at £25,000 per person; and
- withholding tax repayments until HMRC formally agrees a claim over £25,000 involving such reliefs.
Adopting principle-based rules would involve the most radical change to the wording of this legislation and this type of drafting has historically been problematic. It is suggested that a straightforward cap would make the abuse of these rules uneconomic, and it certainly has the benefit of simplicity, but perhaps begs the question of whether the reliefs should be abolished altogether if the aim is to deter their use. The third option, involving the disincentive of increased HMRC scrutiny and cash-flow issues, therefore seems the stronger possibility. The assertions that the existing anti-avoidance rules are adequate do, however, cast some doubt as to whether reform is seriously considered.
Any new legislation would appear in Finance Bill 2013 at the earliest.
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