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View the article online at http://citywire.co.uk/wealth-manager/article/a579076

Could property tax grab hit other asset classes?

by Danielle Levy on Apr 02, 2012 at 00:01

Could property tax grab hit other asset classes?

The government’s introduction of 15% stamp duty on residential property owned through companies in this year’s Budget is raising fears that other asset classes and investment structures will come under attack.

Wealth managers fear it is a sign of the times, preceding the announcement of a general anti-abuse rule (Gaar), which will be the subject of a consultation this summer, based on the Aaronson report. The government will also establish an advisory panel and develop guidance, according to the Budget.

The announcement has caught the attention of many in the industry, with questions raised as to the exact scope and definition of what is deemed ‘abusive’ tax planning and the potential breadth of products that could fall foul of the rule. 

Seismic shift

Sophie Dworetzsky, a partner in the wealth planning team at international law firm Withers, expects the announcement to signal a sea change in tax planning: ‘Although details are hazy and the rule will not be introduced until next year, when combined with talk of retrospective legislation to block Stamp Duty planning, it marks a rather seismic shift in the approach to tax planning, with taxpayers and advisers needing to be very alert to the risk of planning being unwound after the event.'

Her sentiments are echoed by Iain Tait, a partner at London & Capital, who said: ‘Our view is that the Revenue’s trend will move much further into ‘clampdown territory’ over the next few years and therefore any wealthy individuals planning in this area should move with extreme care.’

He said the company will look at non-aggressive or government-promoted ideas, such as enterprise investment schemes (EIS) and venture capital trusts (VCTs), but even these were viewed as ‘high risk and not core business for us’.

Another investment director from a national wealth management firm added: ‘The scope of this could be huge. While it is just residential property for now, who is to say they won’t attack special purpose vehicles for other asset classes? You just don’t know where they are going with this,’ he said.

He suspects film company investments through EIS, forestry investments and VCTs that also invest in structured products could all fall under the spotlight.

Likewise, gilt warrant structures may also come under review, he said. These tend to be simple structures, such as auto-calls, where the client undertakes the credit risk of a bank and the return is based on the performance of an index. The investment bank uses gilt options for structuring and any profits on maturity of the product are delivered as gilts, meaning payments would not be liable to income or capital gains tax.  

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