Taxing times

TAX SOLICITORS GAIN A WARTS-AND-ALL INSIGHT INTO A COMPANY'S AFFAIRS.

THIS IS ONLY ONE OF MANY REASONS, SAYS MICHAEL GERRARD, WHY THIS FORBIDDING PRACTICE AREA IS SO POPULAR

The very mention of it is likely to induce glazed looks and incomprehension even among fellow solicitors, but there is far more to tax than just impenetrable columns of figures.

It is in fact an ever-evolving area of the law, in which practitioners must be on their toes so as to overcome whichever hurdles the Treasury puts in front of clients.

In recent weeks, tax has hit the headlines as a result of the ruling in Rysaffe Trustee Company (CI) v IRC (see [2002] Gazette, 20 June, 8), which saw the Inland Revenue thwarted in its attempts to stop the use of multiple trusts, an important factor in inheritance tax planning.

It further came to prominence over a case involving the London office of French firm Fauchon Levy, when it prompted the French tax authorities to tax a bequest to the British arm of a trans-Channel cancer charity at the same level, 40%, as its French counterpart (see [2002] Gazette, 20 June, 6).

Originally, it faced a 60% tax charge.

Tax law consists of two constituent parts - corporate and private client.

In fact, they have little in common save for a wish to 'get one over' the Inland Revenue, or rather find a legal way through whichever loopholes the government has yet to close.

Corporate tax tends to be a function of the larger law firms, although more and more smaller practices are seeing the need to have an in-house capability too.

Leeds firm Nelson & Co this month recruited Neil Masters from Hammond Suddards Edge to launch a corporate tax department, with the aim of offering a one-stop shop to mid-sized corporate clients.

For a long time, the private client branch of the profession was viewed as being all about wills and probate.

Many of the larger City firms dispensed with their private client departments several years ago.

But now a reappraisal has begun, with the traditional image of the landed, or inheritor private client being replaced by that of the entrepreneur or moneyed foreign tax exile.

Kelly Noel-Smith, a partner at London firm RadcliffesLeBrasseur, says: 'Now you are tax planning for individuals whose net asset worth equates to the turnover of small or medium-sized companies and sometimes exceeds them.'

Apart from their common Revenue foe, all tax lawyers find common cause in a keenness to distinguish them from the accountancy profession, with which they are often in competition for work.

They contend that in many respects they have an advantage when it comes to providing clients with the required advice.

Ms Noel-Smith says: 'I think we have an edge over the accountants, simply because we are trained in law.

Tax law is more than number-crunching; rather it is a conceptual analysis of what the relevant legislation is.'

Her view is backed by the fact that almost every tax dispute is eventually settled through the legal system, which will naturally favour the use of solicitors.

And in terms of both legislation and case law, tax is an ever-changing field.

The Chancellor's Budget statement is merely the tip of an iceberg, beneath which lies the annual Finance Act containing thousands of pages of detail to be mastered, added to which are other pieces of legislation, Revenue guidance, and the continuous procession of court cases.

All these factors must be learned and then employed by tax practitioners as they attempt to solve problems for clients.

Graham Airs, a tax partner at magic circle firm Slaughter and May, who sits on the Law Society's revenue law committee, agrees that tax law might not be to all tastes, but that it is a satisfying branch of practice.

He says: 'Tax is far from dull, as it is constantly changing, though its demands will not suit everyone.' Such skills include infinite patience, as solving tax problems are seldom quick affairs, he adds.

Tax law seems to hold a growing attraction, with many firms saying that their tax departments are often the most popular destinations for new recruits.

But whether working on corporate or private client matters, tax solicitors express the view that their actions provide obvious tangible benefits to clients.

Ian Hyde, a Birmingham-based tax partner at Pinsent Curtis Biddle, says: 'Being able to get to help clients is satisfying.

It is easy to show how you've provided them with added value, by looking at the X million pounds you might have helped save them from paying in tax.'

He adds that by its nature, tax moves into almost all areas of a company's operations, so a tax solicitor gets involved in all the fundamental areas of its business.

Whereas, for instance, property lawyers find themselves largely limited to that aspect of a client's business, he argues that their tax colleagues gain knowledge of areas across the board.

This naturally leads to the issue of whether tax is a 'stand-alone' area or just corporate support.

The answer is that tax solicitors find themselves involved in a mixture of both categories.

Clients will come specifically to discuss tax planning, but even where tax is a part of a wider transaction it is seldom a marginal topic.

Ms Noel-Smith says: 'If you get tax wrong on a large multi-million pound deal, it can cost a client a fortune - so even in these cases tax is far from an auxiliary point, but is central to all deals.'

The main issues with which tax lawyers currently have to contend are, on the corporate side, the exemption for disposals of substantial shareholdings and tax relief on 'goodwill' and intellectual property, and for private client solicitors, the possible changes to the status of non-domiciled foreign residents in the UK.

In addition, both sides find themselves concerned with taper relief on business assets and the thorny subject of stamp duty.

Stamp duty, the charge of up to 4% most commonly placed on land and property, has been placed under a review by the Chancellor, who will announce his findings in his autumn statement.

The recently introduced taper relief has got all tax solicitors rejoicing, in that it promises to produce a swathe of work.

Under the scheme, an individual selling business assets including shares in a private trading company will get large capital gains tax relief if he has held on to the asset for some time.

This will leave him paying only a 20% rate after maintaining the asset for a year and only 10% after two years.

Such moves are believed to be encouraging more people to sell businesses and shares generally.

Similarly, these activities have been stimulated further by capital gains tax exemption on companies selling substantial shareholdings, often in subsidiaries or other companies and the new relief on 'goodwill' and intellectual property.

Meanwhile, private client practitioners are waiting on a Treasury report about whether or not to retain resident non-domicile status, the vehicle by which usually extremely wealthy foreign British residents are currently able to mitigate their overseas tax liabilities.

All these developments mean that the tax practitioner is likely to be busy for some time to come and the sector is largely safe from the ravages of any possible economic downturn.

As John Conder, a partner at City firm Macfarlanes, says: 'Private clients always need help, and as for companies, during a downturn the level of tax taken from them by government becomes increasingly significant.'

Michael Gerrard is a freelance journalist