HM Revenue & Customs (HMRC) has warned that having a complex tax avoidance scheme approved by a senior lawyer does not render it safe after a specialist tax QC who designed his own scheme saw it struck down.
Rex Bretten QC, who retired last year from Tax Chambers, 15 Old Square, designed a highly complex scheme which involved setting up trusts and investing £500,000 in discounted securities. He claimed his scheme created a loss of £475,000 which he could set against his income, saving £190,000 in tax.
However, the tax chamber of the First-tier tribunal ( UKFTT 189 (TC)) upheld an amendment made by HMRC to Mr Bretten’s self-assessment return, saying the securities had been issued solely to facilitate Mr Bretten’s tax avoidance scheme and that there was no genuine loss, so the tax was payable.
Although the structure was unique, the principles ruled on by the tribunal could be directly applied to a number of other cases involving further tax of around £2m.
The Exchequer Secretary to the Treasury, David Gauke, said: “The vast majority of individuals and businesses pay the tax they owe. There are, however, a small minority who will seek to exploit the rules and try to avoid their responsibilities by engaging in artificially contrived schemes.
“This is simply unacceptable and this case serves to highlight the work HMRC is doing to tackle evasion, avoidance and fraud. This government has invested over £1bn in HMRC and we are determined to ensure that the tax that is due under the law is collected.”
Jim Harra, HMRC’s director-general for business tax, said: “This is another important success for HMRC at tribunal which may well have repercussions for other similar tax avoidance schemes.
“Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC’s challenge. That would be a big mistake, as this outcome proves. People should always ask themselves whether a proposed scheme is too good to be true.”