Examples of how the GAAR applies to tax arrangements

7. Income tax and CGT examples to which the GAAR does not apply
7.1 Unconditional contract
7.1.1 Background
The Government announces at Autumn statement that, from 6 April 20XX, the
rate at which chargeable gains are charged to tax will be reduced from the
current level.
7.1.2 Scheme
By the following March, Taxpayer A has concluded negotiations to dispose of
land and buildings to Taxpayer B, but ensures that there is no unconditional
contract for that disposal until 6 April.
The sale is completed on 10 May which results in a substantial capital gain to
Taxpayer A.
7.1.3 The relevant tax provisions
Sections 1, 2 and 28, TCGA 1992
7.1.4 The taxpayer’s tax analysis
The gain should be taxed according to the new rate of CGT in force from 6
April.
7.1.5 What is the GAAR analysis under clause 2(2)?
7.1.5.1 Consistency with principles and policy?
The substantive results of the transactions are consistent with the principles
on which the relevant provisions are based. The rate of capital gains tax has
been reduced from 6 April and the disposal is charged according to the rule in
section 28, TCGA 1992 that a disposal by way of unconditional contract is
treated as taking place at the time of the contract.
7.1.5.2 Do the means of achieving the substantive tax results involve one or
more contrived or artificial steps?
Yes. The contract was delayed so as to take advantage of the reduced rate of
tax applying from April.
7.1.5.3 Were the arrangements intended to exploit any shortcomings in the
relevant tax provisions?
No. The gain is charged to tax at the rate of tax in force at the time.
50