Glossary · UK
What is General Anti-Abuse Rule (GAAR)?
A UK tax rule that lets HMRC counteract the tax advantage from arrangements that are technically legal but go well beyond any reasonable interpretation of what the law intended.
Full Definition
The General Anti-Abuse Rule (GAAR), introduced by the Finance Act 2013, is HMRC's backstop power to counteract "abusive" tax arrangements -- ones that comply with the literal wording of tax legislation but cannot reasonably be regarded as a reasonable course of action, judged against what a genuine commercial or personal transaction would look like. It applies across most of the UK tax system, including Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax and National Insurance, and is deliberately aimed at contrived, artificial tax avoidance schemes rather than ordinary tax planning, such as using an ISA, claiming Gift Aid, or choosing a tax-efficient but genuine business structure. Before HMRC can apply the GAAR, it must refer the case to the independent GAAR Advisory Panel, which gives an opinion on whether the arrangements were a reasonable course of action; HMRC then decides whether to proceed, but a panel opinion that the arrangements were not reasonable makes it much harder for a taxpayer to successfully challenge HMRC's counteraction at tribunal. Where the GAAR applies, HMRC can adjust the tax due to remove the abusive advantage, and since 2016 can also charge a GAAR penalty of up to 60% of the tax counteracted. The GAAR sits alongside, rather than instead of, HMRC's other anti-avoidance tools, such as the Disclosure of Tax Avoidance Schemes (DOTAS) regime and Accelerated Payment Notices.