Loss generating tax avoidance scheme blocked
The Government has announced that they are blocking a structured tax avoidance scheme that was intended to exploit the sideways loss relief rules.
The scheme was designed to generate losses in a professional partnership for offset by users of the scheme against their other income or capital gains by way of sideways loss relief. The scheme relied on the creation of losses through a series of arrangements that were established for the purposes of tax avoidance.
The Government does not accept that the scheme worked, but has announced changes to the law that will take effect from 21 October 2009. The necessary legislation will be included in next year’s Finance Bill. This is intended to remove any doubt as to the tax rules and to discourage scheme providers from devising and operating even more contrived schemes that seek to challenge the sideways loss relief rules. The new rules should not impact on genuine loss-makers who have not entered into avoidance arrangements.