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What is BN66? Is it a retrospective tax?

BN66 is a term used to the refer to the Government’s implementation of s.58 of the Finance Act 2008, which has enabled HMRC to reclaim back taxes tax from users of offshore schemes (particularly trust arrangements), who would otherwise have been liable to UK taxation.

BN66 Retrospective Tax

Budget Note 66

Budget Note 66 (issued during Budget 2008) announced the Government’s plans to clamp down on the abuse of double taxation treaties to remunerate individuals via offshore trusts based in the Isle of Man and other territories.

The stated aims of the legislation were to “clarify, retrospectively, legislation introduced in 1987, so that it has effect as intended”, and “to prevent tax avoidance through the misuse of Double Taxation Treaties by UK residents”.

The earlier legislation referred to in BN66 was initially enacted via the Finance Act (No.2) 1987  to prevent individuals from using double taxation treaties to minimise their UK tax bills by participating in overseas partnerships.

Why is BN66 controversial?

It is the ‘retrospective’ nature of BN66 which has caused so much controversy over the past few years. For proponents of BN66, the legislation has always been in place to deal with overseas tax avoidance structures; s.58 merely clarified the existing rules.

For opponents of the rules, BN66 is a retrospective tax, as the previous legislation was aimed at offshore partnership arrangements, and not trusts (the latter being the vehicle of choice for modern offshore tax avoidance schemes). Opponents also believe that the Government wasn’t adequately equipped with the full facts at the time s.58 was drafted.

Of course, retrospective taxation (whether BN66 is an example of this or not) is a controversial topic in its own right. Some argue that applying BN66 retrospectively could set a bad precedent.

Retrospective taxation – court case

In January 2010, faced with a tax bill of £85,000, Robert Huitson, a computer consultant who had used an offshore scheme for 7 years, took HMRC to court claiming that the retrospective taxation of his past earnings breached his human rights. The judge found in favour of HMRC, and a subsequent hearing by the Court of Appeal in July 2011 found that the Government could legitimately claim taxes from individuals who had used such schemes from before the implementation of s.58 of the Finance Act 2008.

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