Major tax avoidance scheme shut down

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The Government has closed down a major tax avoidance scheme involving dividend rights on shares, before it got off the ground.

The scheme, which was disclosed to HMRC under the new anti-avoidance disclosure rules, would have exploited a loophole in the S730 Income and Corporation Taxes Act. This section deals with so-called 'dividend stripping' - the sale of rights to dividends on shares where the shares themselves are not sold. Subsection 3 provides that where a dividend right has been bought and then sold on before the dividend is received, the sale proceeds are not regarded as the seller's income. It was argued that this exemption applies even if the seller is a financial trader who claims the cost of the strip as a tax loss. The tax avoidance scheme planned to make use of this exemption...

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