Synopsis: The highlights of 20 years of tax change; how does it help us look at what the future holds
For a recent round of presentations on current challenges and opportunities in tax and financial planning, we wanted to look back at what we considered to be the key developments in taxation of relevance to the financial planning process over the past twenty years. Furthermore with another Budget next week it is sometimes good to reflect and anticipate. The broad reason for doing this however was to see if the past could be used as any guide to the future. My how time flies! Our journey down memory lane (or rather up memory lane) from its 1996 starting point reminded us of just what a ‘journey’ we have been on.
So what did this time travel adventure reveal? Well, for both tax and pensions the amount and pace of change has been relentless. The detail has also been impressive. Pages and pages of legislation, regulation, reported litigation, observation and consultation. And on that last ‘action’, the trend to consult before creating legislation is one to be applauded. It seems to be an embedded process now for the bigger and for more complex areas of change and that should increase the chances of better outcomes.
For us the biggest and most fundamentally important development in tax, is the effective ending of the market in aggressive tax avoidance schemes. Schemes that are designed to be within the letter of the law while defeating the intent of legislation. The development and success of ‘purposive interpretation’ in litigation to help HMRC to victory was one started way more than 20 years ago in standout cases like WT Ramsay Ltd v CIR  and Furniss v Dawson (1984).
Clearly HMRC were unhappy with leaving the application of this principle to the courts and needed to ‘up their game’ in the light of the financial pressures and increased public sector debt brought upon the government as a result of the global financial crisis. As a result, we have seen the relentless surge of targeted anti-avoidance provisions, even more litigation and, of course, the introduction of the potentially powerful but as yet unused General Anti Abuse Rule in 2013. We have also seen in the last three years the important development of the Accelerated Payment Notice (APN) and the accompanying (and continuing) expansion of the ‘universe’ of schemes that require a Disclosure of Tax Avoidance Scheme (DOTAS) reference number. The next ‘frontier’ for DOTAS being that of inheritance tax – though it seems likely that most schemes founded on financial products e.g. loan trusts and discounted gift trusts are likely to be spared. All of this has led to the (pretty much) complete drying up of any demand for aggressive avoidance schemes. The war has been won. And the boundaries will continue to be maintained through continued multi-faceted action. This will include, where necessary, international (e.g. EU and OECD), collaboration to combat large scale global profit shifting and tax base erosion.
So there has been a massive change in what’s acceptable and what is not to HMRC and, even more important, to the population. Changing hearts and minds is not easy. HMRC and the Treasury have succeeded in changing attitudes to aggressive avoidance which is now seen in pretty much the same light as evasion. Massive.
Over those twenty years, other important tax developments include the reduction in corporation tax. On inheritance tax the ‘big ticket’ highlights have to be:
• The introduction of the transferable nil rate band in 2007 reducing the need for ‘use it or lose it’ first death trust planning
• The freezing of the nil rate band and the radical change to trust taxation in 2006. From that point we saw the end (or at least dramatically reduced use) of the flexible interest in possession trust as the trust of choice for IHT planning with retail investment products.
So, lots of change. LOTS of change. Does it offer a guide to the future? Well yes. We don’t see the financial pressure on ‘UKPLC’ reducing any time soon and it’s this (as well as the political need to be seen doing something about it) that will continue to put high cost tax relief and loss through tax planning under the microscope. The result will be a continuation of putting past established ‘norms’ in tax and pensions under the microscope with, if necessary, radical or technical but swift and meaningful change in place to reduce (tax) outflow and increase (tax) inflow.
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