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New GAAR advisory panel opinions

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The GAAR advisory panel has published two new opinions, one involving arrangements to reward a company director, the other to confer benefits on participators in a close company. In both cases, the panel concluded that the entering into and carrying out of the arrangements was not a reasonable course of action in relation to the relevant tax provisions.

The first opinion, issued on 11 April 2019, concerned ‘employee rewards using a second-hand bond, gilt options, additional contributions and “cooling off rights”’.

The taxpayers were a company and its sole director and shareholder. The scheme promoter, another company, paid an initial premium to set up an offshore life assurance bond for its directors. A limited liability partnership set up a loan facility for the company, with the bond as security. The taxpayers subsequently acquired the bond from the promoter company and took over the company’s liability. The individual director then entered into a gilts option, through which he ultimately discharged his and the taxpayer company’s liabilities under the loan and the bond.

The taxpayer company credited this discharge amount (£1.5m) to the individual director’s loan account, claiming a corporation tax deduction for the difference between the amount paid for the bond and the much lower value of the bond after the final transactions. It described the deduction as ‘director’s remuneration’.

The panel said it considered ‘each of the bond arrangements, the loan arrangements and the gilts option arrangements to be contrived and abnormal’ and ‘without any commercial purpose other than to secure a beneficial tax treatment for the individual in comparison with receiving remuneration in cash whilst enabling the company to claim a corporation tax deduction’. In the panel’s view, the most likely comparable commercial transaction would have involved a cash bonus paid to the individual director as remuneration. See

The second opinion, issued on 12 April 2019, concerned ‘extraction of value using a second-hand bond, gilt options, additional contributions and “cooling off rights”’.

The taxpayers were a close company and its two director/shareholders. The taxpayers acquired an offshore bond, each shareholder providing a guarantee to cover the liability assumed by the company. The shareholders then entered into gilts options, which they ultimately used to meet their guarantee of the company’s liability in respect of the offshore bond. The company credited these amounts (£85,000 and £165,000 respectively) to the directors’ loan accounts.

The panel’s view was that the shareholders had not taken any material financial risk under the arrangements and the company had not been in a position to make a profit. The purpose of the arrangements was the extraction of value by the shareholders from the company, the most likely comparable commercial transaction being a dividend or other cash distribution. See

Issue: 1444
Categories: News