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General Anti-Abuse Rules (GAAR) UPDATE

HMRC has issued updated guidance on the General Anti-Abuse Rules (GAAR).

Updated guidance on the GAAR, which originally came into effect July 2013, is now available.

We wrote about the GAAR and GAAR Advisory Panel Opinions in our bulletin of 14 August 2017.

The GAAR applies to abusive tax arrangements. It only comes into operation when the course of action taken by the taxpayer aims to achieve a favorable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable.

A ‘double reasonableness’ test requires HMRC to show that the arrangements ‘cannot reasonably be regarded as a reasonable course of action’. This recognises that there are some arrangements which some people would regard as a reasonable course of action while others would not.

The ‘double reasonableness’ test sets a high threshold by asking whether it would be reasonable to hold the view that the arrangement was a reasonable course of action – the arrangement is treated as abusive only if it would not be reasonable to hold such a view.

The GAAR guidance has been updated to reflect that where there are a number of similar cases these may be pooled by HMRC and the GAAR Advisory Panel may be asked to consider one case in respect of that pool, or in certain circumstances a generic referral may be made by HMRC.

This change reflects that the pool has an existence separate from the lead arrangements, so that the pool may be created or increased even if the lead arrangements have taken corrective action.

Around the same time HMRC also published a fact sheet on counteraction notices. This sets out how tax adjustments are made when HMRC believes that arrangements, to which the GAAR applies, have been entered into.

HMRC will usually make the notified adjustments quite soon after giving the taxpayer a provisional counteraction notice, in the form of a tax assessment, an amended tax assessment, a determination, or a decision relating to their liability to the type of tax involved.

HMRC has also published the GAAR Advisory Panel opinion of 28 February 2018, on employee rewards using contribution, employee loans and tripartite agreements.

The latest Panel opinion, which affects income tax and corporation tax, covers:

  • employee benefits to employer-financed retirement benefit schemes (EFRBS);
  • deeds of contribution;
  • employee loan agreements; and
  • tripartite agreements (i.e. between three parties).


It concerned tax avoidance arrangements where contributions to an employer-finance retirement benefits scheme (EFRBS), and loans to shareholder directors that were unlikely to ever be repaid, where the taxpayer sought to avoid income tax and national insurance charges on the funds made available to the shareholder directors. It centered around the case of a taxpayer BCD Ltd,  in which Mr J and Mr K are both shareholders and directors, and an employer financed retirement benefit scheme (EFRB) established for BCD Ltd in July 2013. (Full names redacted by the Panel.).

The GAAR Advisory Panel’s opinion is:

  • entering into the tax arrangements isn’t a reasonable course of action in relation to the relevant tax provisions;
  • carrying out of the tax arrangements isn’t a reasonable course of action in relation to the relevant tax provisions.


The Panel summed up by saying “In this case a taxpayer and its advisers identified a potential shortcoming in wide – ranging “keep off the grass” anti-avoidance legislation. By adopting a series of carefully orchestrated and contrived steps the taxpayer and its advisers sought to frustrate the intent of Parliament and gain an unfair and unintended tax “win”.

This is the GAAR Advisory Panel’s fifth opinion in respect of employee reward schemes – all finding that the tax arrangements are abusive.

In respect of this opinion HMRC may now issue pooling notices to apply the opinion to all users of this scheme and provisional counteraction notices notifying adjustments to be made to protect against the loss of tax.


HMRC has published a special edition of its Trusts and Estates Newsletter which focuses on HMRC’s inheritance tax process and timescales.

HMRC has published a special edition April 2018 of its Trusts and Estates Newsletter which focuses on improvements to HMRC’s inheritance tax process and timescales for completion of Form IHT400 – Inheritance Tax Account.

On having received feedback, it would appear that many people would like to know earlier in the process whether or not HMRC may carry out a compliance check or ask questions about the values in the estate. This newsletter has been specifically produced to show the new timeline and outline the changes to the process for issuing clearance on an estate.

In certain straightforward cases HMRC will not look at the IHT400 form in any more detail after it has sent you its initial calculations – notification will be given in writing if this is the case of if the account will be looked at in more detail. In the latter case HMRC will provide detail of when you can expect to hear from them – usually 12 weeks from when the first calculations were submitted.

HMRC will no longer issue a clearance letter once the checks have been finalised. Instead, should you wish to apply for clearance, you should use form IHT30 ‘Application for a clearance certificate.’ You should, however, only do this once you are sure that there will be no further changes that will affect the tax position on the estate. Under section 239(2) of the Inheritance Tax Act 1994 it suggests that it is appropriate to wait two years after the date of death – although in practice HMRC will consider clearance earlier but would expect you to apply after at least a year has passed since date of death.

Even after probate has been granted, in many cases, there will still be changes which need to be notified to HMRC. In these cases, it would be better to wait until you believe the values in the estate are final or once 18 months have passed since the date of death, whichever is earlier. Before this, you only need to notify HMRC if:

  • the changes relate to the value of land, buildings or unlisted shares;
  • you want to claim relief when you have sold land or shares at a loss;
  • you have sold assets on which you were paying tax by instalments;
  • the total increase or decrease in the value of the estate is more than £50,000, before any exemptions or reliefs;
  • we have told you that we are carrying out a compliance check on the estate;
  • the person who died made a gift with reservation of benefit or had the right to benefit from a trust when they died.


You should also ensure that you use the right forms when you tell HMRC about changes. Use:

  • form IHT35 ‘claim for relief – loss on sale of shares’ – to claim relief on shares sold at a loss within 12 months of the date of death;
  • form IHT38 ‘claim for relief – loss on sale of land’ – to claim relief on land or buildings sold at a loss within four years of the date of death;
  • form C4 ‘Corrective Account’ or send a copy of Form C4(S) ‘Corrective inventory and account (Scotland)’ – to tell us about any other amendments to the estate.


The Newsletter also provides a week by week timeline in relation to when you can expect to hear about your IHT400 form.

Finally, it is important to note that the IHT400 from is required to be submitted and any inheritance tax paid before probate can be granted so it is essential that HMRC receives all the information it needs to calculate the tax due.


An important change to Support for Mortgage Interest took effect from 6 April.

Two of the unwritten laws for Chancellors are:

  1. If you are going to do something that could be unpopular, whether raising taxes or cutting benefits, the best time to act is in the first Budget after the General Election.
  2. Putting distance between the announcement of bad news and when it takes effect limits the public criticism because there is no immediate pain.


The current editor of the London Evening Standard, George Osborne, followed both principles in overhauling Support for Mortgage Interest (SMI):

  1. He announced the changes in his July 2015 Budget, his first performance after the May 2015 General Election.
  2. Of the two major changes he proposed, one took effect from the following April, while the other only came into force on 6 April 2018.


Strictly speaking, SMI as it now exists is no longer a social security benefit. Whereas before 2018/19 the DWP made mortgage interest payments (within limits – see below) for eligible claimants, now what it does is make loan payments (secured on the mortgaged property) to cover the interest. There is no benefit, as such, other than that the mortgage interest becomes a debt to the DWP rather than an outstanding amount to the mortgage lender.

Most of the other key points of SMI have not changed:

  • Eligibility depends upon receipt of Income Support, Universal Credit, the income-related versions of Jobseekers’ Allowance and Employment Support Allowance or Pension Credit. Thus, for working age claimants, the usual upper capital limit of £16,000 applies.
  • There is generally a “waiting period” of 39 weeks from the date of claiming the eligibility benefit, other than for Pension Credit. Before April 2016 that period was 13 weeks.
  • The maximum amount of mortgage covered is generally £200,000 (£100,000 for most Pension Credit claimants). The £200,000 figure was set in January 2009 and had it moved in line with UK average house prices would now be around £285,000.
  • The DWP assumes a “standard interest rate” for all mortgages, rather than the rate the lender charges. The DWP rate is based on Bank of England data for average mortgage rates (variable and fixed). It is currently 2.61%, which means a borrower whose loan has reverted to lender’s standard variable rates (SVRs) will usually see their mortgage debt increasing as well as accumulating a debt to the DWP.


The loan from the DWP carries a variable interest rate linked to government borrowing costs and is currently 1.5%.

The DWP loan must be repaid on home sale, transfer or on death. The DWP web guide to SMI is here and an insightful House of Commons briefing paper is available here.

These changes have prompted some press coverage because of the poor response from existing (pre-April 2018) claimants who need to sign up to the new loan arrangement. However, they should also give pause for thought to anyone with a mortgage. The message being conveyed by the government is that borrowers are meant to arrange their own protection.


In this newsletter HMRC explain about how they are moving pension scheme registration and administration onto a new digital platform so that they can improve the service for pension scheme administrators. 

HMRC state that the new service will:

  • provide a new digital platform for you to manage and register your pension schemes
  • provide a digital account for all pension schemes and reporting
  • issue all HMRC notifications regarding registration through the new service
  • hold details of existing pension schemes, pension scheme administrators and pension practitioners following migration from the existing Pension Schemes Online service


The service will roll out in two phases, the first phase has now been delayed until May 2018 to ensure that it was fully tested. In this first phase administrators will be able to immediately:

  • submit your application to register a new scheme to HMRC, using the new service; and
  • to register as a pension scheme administrator on the new service.
  • Later on in this phase they administrators will be able to:
  • amend scheme administrator details
  • amend pension scheme details
  • associate/add additional pension scheme administrators
  • remove themselves as a pension scheme administrator in certain circumstances
  • decline an invitation to be associated to a scheme as pension scheme administrator
  • remove themselves as a pension scheme administrator from the new service


The newsletter goes on to give more details about this as well as the Phase two which promises to:

  • introduce pension scheme reporting on the service
  • add pension scheme practitioners so they can use the new service to support pension scheme administrators with their reporting requirements
  • issue penalties and assessments for pension schemes through the new service
  • migrate existing pension schemes and scheme administrators (who have not already used Manage and Register Pension Schemes) from the current Pension Schemes Online service to the new service



FOS publishes their plans for the 2018/19 tax year. 

The Financial Ombudsman Service has published plans for the financial year 2018/2019, following formal consultation with stakeholders. The plans set out how many people they think will go to them for help and what they need to do, to give the fair, rigorous, consistent answers needed.

FOS’s expectations for the year ahead include:

  • receiving 380,000 new complaints – including 220,000 complaints about PPI
  • resolving 410,000 complaints – including 250,000 about PPI
  • freezing case fee at £550 for the sixth year, with no fee chargeable for each business’s first 25 complaints
  • freezing the levy at £24.5 million



Ruling issued on 17 April with regards to increases in the BIC UK scheme and retrospective changes 

On 17th April 2018 the High Court published details of the ruling made in the case of Burgess and others v BIC UK. The case was brought to determine the following in respect of the BIC UK scheme.

  • Were the Pre-97 Increases properly paid?
  • If the Pre-97 Increases were properly paid, can they now be stopped?
  • If the Pre-97 Increases were not properly paid, can the Trustees now recover from the pensioners the payments made since 1992?


BIC UK has been challenging increases that were implemented when the scheme was in surplus, because of this the increases were stopped on 3 March 2013. The trustees of the scheme, the claimants now want to ascertain the above. Although the ruling agrees that the amounts were properly paid and could not be stopped the Judge went on to consider the third point just in case they were incorrect in the first two parts.

This is the part that is of more interest, it looks to see if any overpayment by the scheme can be recouped from the members to which they were paid. In addition, the issues of time since the payments were made was considered.

The outcome of this was that the scheme could request repayment of the overpaid benefits, the member could refer this to the Ombudsman but because they are not a court then they cannot force the repayment and should member dispute the Ombudsman’s determination it would need to go before the county court. In addition, the Judge determined that there was no time limit for this request for repayment.

Summary of principal conclusions

  1. the Pre-97 Increases were not validly granted by virtue of either rule 32 or rule 36 of the Fourth Edition of the Rules;
  2. the Pre-97 Increases were validly granted due to each of clause 4 and 9 of the 1993 Deed and rules 3(c)(iii) and 9(a) of the 1993 Rules since those provisions can take effect from 6 August 1990 without impermissibly re-writing history;


  • the decision to pay the Pre-97 Increases was irrevocable;


  1. if the Pre-97 Increases were not validly granted, the Trustees cannot assert that BIC UK is estopped from so asserting;
  2. if the Trustees were to exercise the equitable right of recoupment to recover overpayments, then a determination by the Pensions Ombudsman on a reference by a member would not amount to an order of a competent court within section 91(6) of the Pensions Act 1995, but an order of the County Court enforcing such a determination would;
  3. equitable recoupment is not subject to a six-year limitation period under section 5 of the Limitation Act 1980; and


  • the Court is not in a position to determine on a group basis whether recovery of overpayments by the Trustees would be barred by laches or estoppel, since those are matters which require determination as between the Trustees and individual members of the Scheme in their own particular circumstances






‘The content of this newsletter is for information only. It does not represent personal advice or a personal recommendation and should not be interpreted as such.  Please do not act upon any part of it without first having consulted an Independent Financial Adviser’.



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