GAAR applies to the artificial repayment of a loan to participants
HMRC has published the opinion of the General Anti-Abuse Rule Advisory Group (GAAR) under a tax regime involving the artificial repayment of a loan or an advance to a participant to avoid a charge under the laws on loans to participants. In the Panel’s view, the arrangement was not a reasonable course of action under the relevant tax provisions. The arrangement aims to enable taxpayers to avoid a tax liability under section 455 of the LTC 2010, by repaying a loan within 9 months of the end of the accounting period in which it was advanced to them. . The participant would repay the loan by creating a company of which he was the sole manager and shareholder. The company would provide advisory services to the participant and issue shares without calling them. The participant would guarantee that the call would be satisfied, which would increase the value of the company and the participant would sell its shares to the company that advanced the loan as payment.
The GAAR Panel of Experts concluded that, as the company providing the advisory services “lacked commercial purpose and economic substance” and was purely an asset created to satisfy debt, the deal was contrived and contrived and therefore covered by the GAAR.