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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Losses: targeted anti-avoidance rule from 6 December 2006

An anti-avoidance provision was introduced in FA 2007 (known as a “Targeted Anti-Avoidance Rule”, or a ‘TAAR’ for short). The measure counters the contrived creation of Capital Gains Tax losses. It builds on a provision for Corporation Tax introduced in FA 2006.

The legislation, to be found at TCGA92/S16A, was announced in the Chancellor’s Pre Budget Report (“PBR”) on 6 December 2006 and is effective for Capital Gains Tax from that date.

Draft guidance document and draft legislation were published at PBR. The final version of the published guidance document can be found at appendix 9.

The TAAR applies where a capital loss arises in connection with arrangements, a main purpose of which is to obtain a tax advantage. A tax advantage includes any income tax advantage. The TAAR applies to capital losses which arise on disposals on or after 6 December 2006. Where the legislation applies to a capital loss, the loss is not to be an “allowable loss” and may not be set off against chargeable gains or income.

The TAAR is targeted at arrangements that are intended to avoid UK tax therefore most persons will not be affected and it will not apply to the majority of transactions undertaken. The guidance at appendix 9 gives examples of the types of disposal that may or may not be affected.

If you are dealing with an allowable loss arising from a marketed avoidance scheme the Technical Lead in Counter-Avoidance will be able to tell you whether the TAAR may apply. Otherwise, if you are considering an allowable loss which you believe may be affected by the TAAR, you should seek advice from Capital Gains Technical Group.  In corporation tax cases, you should do this via the CG specialist in your area of business. You should report any such case as soon as it is apparent that the legislation may apply and before you put forward any argument on the point.

The guidance should assist customers in deciding whether a capital loss is affected by the TAAR. If you receive an enquiry as to the potential application of the TAAR to a transaction that meets HMRC’s criteria for offering an opinion and that cannot be answered by reference to the guidance, you should seek advice from Capital Gains Technical Group or, in corporation tax cases, from the CG specialist in your area of business.

Remember to use the appropriate Enquiry Template when seeking technical advice.