Avoidance schemes are rife among capital gains taxpayers

The MORI survey, Evaluation of the Changes to Capital Gains Tax Since 1998, shows that avoidance has been rife, with one in ten of those interviewed, around 1,000 CGT payers, having used schemes.

It shows a picture of a lack of understanding of the tax, a public unhappy with what they claim is ‘double taxation’, and advisers required for the vast majority of respondents to help them file returns.

A third of respondents were aware of schemes that must be disclosed on a tax return, with 13% using such schemes.

Loss purchases and schemes devised by tax advisers were popular methods of avoiding CGT.

Only 28% of advisers interviewed were unaware of clients using schemes to avoid CGT. More than half of advisers said that clients claiming gift relief ­ passing an asset to a relative or friend ­ was the most common method of reducing CGT liability.However 18% of those represented by an adviser with gains over £100,000 were more likely to use schemes that must be disclosed on a tax return, as well as setting up offshore trusts.

Individuals that invested in companies through enterprise investment schemes (EIS) were the most likely to avoid CGT (28%).

Reacting to the figures, Grant Thornton partner Mike Warburton said he was surprised at the extent of avoidance, and believed those using schemes would have involved large sums of money.

But he expects most of the artificial schemes around CGT have already been stamped out, and if the survey had enquired about the use of schemes over the last 12 months the results would have shown significantly less usage.
‘There’s such a small window of opportunity for schemes now, it has made it not worth doing. But I’m surprised at the large number of people that had used schemes.’

One of the main reasons for the use of dodges around CGT could be the public’s attitude to the regime. Nearly two-thirds (64%) said it was unfair to be taxed on investments bought from taxed income, while 56% said the new CGT system was unfair.

One-half said CGT was more complicated than other taxes, with just 29% stating the rules were easy to understand.

‘If advisers are helping 75% of people liable for CGT then it’s evidence CGT is complicated,’ Warburton added.