Continuing apace with a drive to stamp out avoidance, the Government recently announced the immediate closure of two tax avoidance schemes, in one case with partly retrospective effect.

The first measure will amend legislation that applies to debts becoming held by a connected company. It will introduce a targeted anti-avoidance rule to counter arrangements that are entered into in order to avoid or reduce a deemed release where a connected creditor company acquires discounted or impaired debt, or where companies that are party to impaired debt become connected.

The second avoidance scheme seeks to exploit provisions of the Authorised Investment Fund regulations to generate the repayment of tax (whether directly or through set off against other liabilities) that has never been paid.

Legislation to block this scheme was effective from 27 February 2012 and applies to arrangements involving financial products designed to create tax credits that can be repaid or offset against a bank's other income where the tax in question has not been paid, or to avoid being taxed on profits on buyback of the bank's own debt.

Further details on both is available at http://www.hmrc.gov.uk/drafts/tax-avoid-sch-closed.htm

Further legislation was also announced, effective from 13 March 2012, to counter tax avoidance that relies on property business loss relief or post-cessation property relief.

HMRC have stated that the scheme seeks to generate loss relief from a property business that holds an agricultural estate. It is intended that this loss can then be set-off by users of the scheme against their other income. The Government does not accept that these arrangements have the effect that is sought, and as a result legislation was announced to prevent property business loss relief being given where allowable agricultural expenses arise from arrangements entered into in which the main purpose (or one of the main purposes) is to obtain a tax reduction.

Since this scheme is the third avoidance scheme that has targeted trading and property reliefs, HMRC have stated that there is a risk that further schemes may seek to exploit one or other of these reliefs. The Government therefore introduced further legislation in Finance Bill 2012 to prevent post cessation property relief being given where a qualifying payment/event arises from arrangements entered into in with the purpose of obtaining a tax reduction. That legislation also had effect from 13 March.

Draft legislation and further details of this measure are available from http://www.hmrc.gov.uk/budget-updates/march2011/index.htm#13Mar12