The loophole allowed rich offshore trust holders to save capital gains tax (CGT) by bringing trusts set up before 1991 back onshore (see box for details). Although only a few hundred people use this procedure, the sums involved are huge.
The Treasury believes that by bringing this planned Budget measure forward 11 days to apply from 6 March, it has saved up to pounds 1bn in revenue which otherwise would have been lost.
Most of the people benefiting from the loophole were company directors involved in management buyouts or directors of privatised companies, both of whom could see enormous gains on the shares they held.
Whenever a Budget change like this is anticipated, the products to be barred are frantically promoted on a "buy-now-while-stocks-last" basis.
Philip Harrison, tax partner at Eversheds, a national law firm, says: "Although this has been known about for years, it's only recently that it's become prevalent. Some of the specialist firms of tax consultants have been mail-shotting people. I think what's happened is that it had become too well-known, and the Government decided to crack down on it."
Tim Jones, of accountants Arthur Andersen, says: "It was a very complex manoeuvre, involving very fancy professional fees. We're talking about really big gains here. One person could have pounds 200m worth of gains. Capital gains tax on that, at 40 per cent, is pounds 80m."
Mr Jones and Mr Harrison agree that this move suggests the Government will adopt a tough stance on other tax-planning measures. Mr Jones warns: "This flags the Government's intention to attack those trusts with shares in them which are pregnant with gains, and haven't yet been liquidated."
Mr Harrison says: "The Government is serious about putting a stop to this sort of thing. We all know that there have been plenty of people who have gone in for tax avoidance.
"There have been lots of loopholes - entirely legal ones - and there's no way you can argue with the Government for closing some of those down."
A Treasury spokesman says: "The Chancellor has always made it clear that the Government is committed to looking at tax avoidance and closing loopholes in each Budget. This Budget is an opportunity to see what further loopholes or tax-avoidance measures need to be tackled."
The Chancellor is expected to use his Budget on 17 March to announce consultation on introducing a general anti-avoidance measure. One form this could take would be allowing the Inland Revenue to disregard any transaction if it believed the main purpose of that transaction was to avoid tax.
Many experts fear a provision like this would deter companies from making perfectly innocent transactions, for fear the Revenue would accuse them of trying to dodge tax.
Mr Harrison says a general measure would be workable only if the Revenue were prepared to clear planned transactions in advance.Reuse content