As announced in the Budget, the following headline rates of CGT are changing:
Anti-forestalling
These changes were accompanied by broad anti-forestalling measures, which alter the timing of certain disposals for CGT purposes. The ‘normal’ timing rules (which dictate that disposals under unconditional contracts take place at the time the contract is made) will not apply to unconditional contracts entered into on or before, and completed after, 30 October. Instead, the presumptive date of disposal for those contracts is now the date of completion.
Those measures will not bite only where the taxpayer confirms in their tax return that the contract is an ‘excluded contract’ for these purposes. Broadly, these are that obtaining an advantage under the ‘normal’ CGT rules was no purpose of entering into the contract and, where the disposal was to a connected party, that the contract was entered into wholly for commercial purposes.
In summary:
Practical application of the anti-forestalling rules
The ‘common’ formulation for avoidance typically looks at whether obtaining a tax advantage was the, or a, main purpose of entering into a particular transaction or whether something has been done ‘wholly or mainly’ for a particular purpose. The anti-forestalling rules are much less compromising. Unless the taxpayer confirms that the timing of the disposal was ‘no purpose’ of entering into the contract and, in cases involving connected parties, that it was entered into ‘wholly’ for commercial reasons, the higher CGT rates will apply in respect of all unconditional contracts that straddle 30 October (even if entered into some months ago).
In contrast, the anti-forestalling rules do not catch contracts that completed immediately prior to 30 October even if they were completed with the aim of securing pre-Budget CGT rates. That is, presumably, on the basis that a CGT liability has crystallised which otherwise may not have done, and that current anti-avoidance rules (including the GAAR) can be used in cases where arrangements are considered to be wholly artificial.
Self-assessment has always required taxpayers to police their own tax affairs but the anti-forestalling rules require them to tell HMRC specifically whether they think those rules do not apply to them and, it is assumed, returns including such statements are more likely to be looked into by HMRC. Even in the case of contracts that are signed and completed ahead of 30 October, taxpayers (and their advisers) will want to make sure that evidence is available making clear when the contract completed, possibly even to include specific wording in the white space in an individual’s tax return to make this clear to HMRC.
Wider implications
The requirement for individuals to proactively consider anti-forestalling measures and notify mirrors an approach that businesses have already had to get used to. In the past, HMRC assessed and collected tax, and enquired into and investigated tax anomalies and irregularities. That process has been eroded over time and continues to evolve.
The first change came about with the introduction of self-assessment (for both businesses and individuals). Then came the disclosure of tax avoidance schemes rules, the code of practice for banks, the obligation on larger businesses to publish their ‘tax strategy’, the criminal offence of facilitation of tax evasion (and requirements on businesses to ensure they have processes in place to prevent this), and the obligation on large businesses to notify HMRC of ‘uncertain tax positions’ taken in returns.
The emerging pattern is of HMRC and the Treasury wanting to be provided with information about perceived ‘gaps’ or ‘loopholes’ in the legislation. That now appears to be coupled with a willingness to alter general positions dictated by current law when introducing changes, so as to prevent taxpayers from accessing the desired tax treatment unless they meet particular conditions and flag to HMRC that this is the view they have taken.
Catherine Concannon & Charlotte Fallon, Addleshaw Goddard
As announced in the Budget, the following headline rates of CGT are changing:
Anti-forestalling
These changes were accompanied by broad anti-forestalling measures, which alter the timing of certain disposals for CGT purposes. The ‘normal’ timing rules (which dictate that disposals under unconditional contracts take place at the time the contract is made) will not apply to unconditional contracts entered into on or before, and completed after, 30 October. Instead, the presumptive date of disposal for those contracts is now the date of completion.
Those measures will not bite only where the taxpayer confirms in their tax return that the contract is an ‘excluded contract’ for these purposes. Broadly, these are that obtaining an advantage under the ‘normal’ CGT rules was no purpose of entering into the contract and, where the disposal was to a connected party, that the contract was entered into wholly for commercial purposes.
In summary:
Practical application of the anti-forestalling rules
The ‘common’ formulation for avoidance typically looks at whether obtaining a tax advantage was the, or a, main purpose of entering into a particular transaction or whether something has been done ‘wholly or mainly’ for a particular purpose. The anti-forestalling rules are much less compromising. Unless the taxpayer confirms that the timing of the disposal was ‘no purpose’ of entering into the contract and, in cases involving connected parties, that it was entered into ‘wholly’ for commercial reasons, the higher CGT rates will apply in respect of all unconditional contracts that straddle 30 October (even if entered into some months ago).
In contrast, the anti-forestalling rules do not catch contracts that completed immediately prior to 30 October even if they were completed with the aim of securing pre-Budget CGT rates. That is, presumably, on the basis that a CGT liability has crystallised which otherwise may not have done, and that current anti-avoidance rules (including the GAAR) can be used in cases where arrangements are considered to be wholly artificial.
Self-assessment has always required taxpayers to police their own tax affairs but the anti-forestalling rules require them to tell HMRC specifically whether they think those rules do not apply to them and, it is assumed, returns including such statements are more likely to be looked into by HMRC. Even in the case of contracts that are signed and completed ahead of 30 October, taxpayers (and their advisers) will want to make sure that evidence is available making clear when the contract completed, possibly even to include specific wording in the white space in an individual’s tax return to make this clear to HMRC.
Wider implications
The requirement for individuals to proactively consider anti-forestalling measures and notify mirrors an approach that businesses have already had to get used to. In the past, HMRC assessed and collected tax, and enquired into and investigated tax anomalies and irregularities. That process has been eroded over time and continues to evolve.
The first change came about with the introduction of self-assessment (for both businesses and individuals). Then came the disclosure of tax avoidance schemes rules, the code of practice for banks, the obligation on larger businesses to publish their ‘tax strategy’, the criminal offence of facilitation of tax evasion (and requirements on businesses to ensure they have processes in place to prevent this), and the obligation on large businesses to notify HMRC of ‘uncertain tax positions’ taken in returns.
The emerging pattern is of HMRC and the Treasury wanting to be provided with information about perceived ‘gaps’ or ‘loopholes’ in the legislation. That now appears to be coupled with a willingness to alter general positions dictated by current law when introducing changes, so as to prevent taxpayers from accessing the desired tax treatment unless they meet particular conditions and flag to HMRC that this is the view they have taken.
Catherine Concannon & Charlotte Fallon, Addleshaw Goddard
