According to law firm Collyer Bristow, a recent clampdown on CGT avoidance schemes, resulting in underpayments on the disposal of property, shares and other items, has seen £115m raised by HMRC’s local compliance teams.
HMRC’s new division, the Counter Avoidance Directorate, set up to focus on ‘marketed tax avoidance schemes’, took in a further £39m.
James Badcock, partner at Collyer Bristow, said while in many cases schemes can be legally justified, HMRC would likely look at anything going “against the spirit of the law” or any “deliberate or negligent” underpayments.
He said: “The Revenue has had some real success targeting CGT avoidance schemes over the last few years, as well as lower-level abuse and error.
“Challenges also often arise in relation to assets passed between family members."
“The schemes uncovered use a range of mechanisms to reduce an individual or company’s CGT bill. Some create artificial capital losses which can be used to offset the tax, while others make use of offshore trusts and structures to exploit available exemptions or loopholes.”
Failure to declare
Outside of the schemes, Badcock said local teams would be honing in on individuals or businesses that failed to declare disposals or transfers of assets, or undervaluing during reports.
He added: “Challenges also often arise in relation to assets passed between family members. When parents sell or transfer a property to their offspring, for example, it often gives rise to a chargeable gain. Where this goes unreported the Revenue will look to follow up.”
In addition, following the changes to CGT in last month’s budget, which saw reduced CGT rates from a higher rate of 28% to 20% and basic rate of 18% to 10%, the law firm highlighted the surcharge for property investors, meaning many will still have to pay the higher rate of CGT on second homes or properties.
Badcock said: “The decision not to extend reductions to this group – alongside soaring property prices, particularly in London – means many face a substantial CGT bill when they come to sell, and maintains the heavy pressure on the buy-to-let sector.
“Investors will be keener than ever to ensure tax efficiency. Planning to reduce CGT paid within reason is sensible but taxpayers must seek advice and ensure that they do not cross the line into what could constitute abusive avoidance or evasion.
“The revenue has seen healthy progress from investigations into this area in the last year and is likely to keep an eye on it going forward.”