Currently avoiding tax – also called tax planning – is perfectly legal and accepted.
In the mortgage market buying UK residential property through a company or offshore trust has been actively promoted by intermediaries trying to help their clients avoid large stamp duty bills – particularly in the bridging and cash purchase markets.
But Osborne signalled today a massive shift in Britain’s tax system.
He called tax evasion and “aggressive tax avoidance...morally repugnant”.
He confirmed that government will consult on the details of a general anti-avoidance rule and legislate for it in next year's Finance Bill.
It follows a recommendation by Graham Aaronson QC that such a rule would improve government’s ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business.
More worrying still is that Osborne signalled the government may act retrospectively on avoidance measures including the use of companies and offshore trusts to avoid stamp duty.
He said: “A major source of abuse - and one that rouses the anger of many of our citizens - is the way some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property.
“I have given plenty of public warnings that this abuse should stop. Now I'm taking action.”
He announced a 15% rate of stamp duty applied to residential properties over £2m bought into a corporate envelope ; a consultation on the introduction of a large annual charge on those £2m residential properties which are already contained in corporate envelopes; and, to ensure that wealthy non-residents are also caught by these changes, a capital gains tax on residential property held in overseas envelopes.
Osborne added: “I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned.”
Robert Sinclair, director of the Association of Mortgage Intermediaries, said: “I’ve been saying for a long time that those promoting this avoidance will get us into trouble.
“But most worrying is that this is the first time I’ve ever heard government say that they’ll come and do you for something retrospectively.
“I think the move from avoidance being acceptable to morally repugnant is probably the single biggest shift in the British tax system I’ve seen in my lifetime.
“The question will be where we draw the line given that there are schemes that actively promote avoidance such as the ISA.”
And Jeremy Cape, partner at SNR Denton UK LLP, said: "The Chancellor did not see a distinction between tax evasion and aggressive tax avoidance, calling both "repugnant".
“He is pushing ahead with the general anti-avoidance rule and has made it clear that retrospective legislation may become more common."
Miranda Cass, tax partner at Bristows, said the introduction of a general anti-avoidance rule should be welcomed by all but the most aggressive of tax planners provided that legitimate tax arrangements are not affected.
She added: "The full implications of the rule have not been analysed yet but any risk that this rule will make transactions more difficult or more costly to plan for or to carry out will be a serious impediment to any growth in the economy.
"For the Chancellor to be introducing new and complex rules at the same time as drastically cutting the number of staff at HMRC does not make for a happy combination.
"Advisers are bound to be concerned that for every aggressive tax scheme this rule defeats, it will hinder or prevent two or three perfectly innocent transactions.”
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