New legislation closes income tax avoidance scheme, Government says

The "contrived and aggressive" scheme enabled has been "shut down" following the introduction of legislation in the Finance Bill 2012, the Treasury said. The legislation prevents "property business loss relief arising from tax motivated arrangements" and came into effect on Tuesday.

Property business loss relief allows a person to claim a loss as a deduction from their general income that arises from agricultural expenses or capital allowances. The claim can be made for the year of the loss or the following year, the Treasury said.

"The scheme, which is being marketed to high net worth individuals as a way of reducing their end-of-year tax bill, sought to use a series of highly artificial transactions to generate tax relief from a property business that owns agricultural land," the Treasury said in a statement. "Although the land itself and the business owning it will exist, the transactions are not part of any genuine agricultural business. They are generated only to create an artificial loss that can be set off by users of the scheme against their other income to reduce their tax bill."

Another loophole that would have enabled a person to pay lower income tax on some payments and bad debt following the "cessation" of a property business has also been closed.

"At a time when our top economic priority is reducing the deficit, it is unacceptable for anyone to try to avoid paying a fair share," David Gauke, Exchequer Secretary to the Treasury, said.

"Today’s action will not affect legitimate agricultural businesses, but by acting swiftly, the Government has prevented this scheme being used by people who want to escape paying the tax they owe. We won’t hesitate to close other avoidance schemes down as we become aware of them," he said.

Last month Gauke announced the closure of a debt buyback scheme which had been operated by Barclays as well as a second scheme involving Authorised Investment Funds (AIFs). He said the closures would ensure the payment of "over half a billion pounds in tax".