Tax planning is a necessarily broad term, the aim of which is to organise a client’s financial affairs in a way that minimizes the amount of tax liable in current and future tax years as much as possible. Most commonly ‘tax planning’ will refer to employment tax planning, capital gains tax planning, estate planning, inheritance tax planning, property tax planning, international tax planning and expatriate tax planning. In addition to these fields there are many numbers of situations where tax planning can benefit clients.
It is vital in the UK to understand HMRC's response to tax planning generally and in relation to this how, in the absence of specific anti-avoidance legislation to deal with a particular situation, the courts have, through a line of cases, developed what is referred to here as the 'Ramsay Principle'. In considering any tax planning initiative it is essential to have regard to the possible impact of the Principle (this is set out in WT Ramsay v IRC  STC 174, as subsequently developed in IRC v Burmah Oil Co Ltd  STC 30 and Furniss v Dawson  STC 153, and as subsequently explained in Craven v White  STC 476. The Principle enjoys a number of names: 'the Ramsay Principle'; 'the Rule in Furniss v Dawson' and 'the New Approach' (to tax avoidance).
As a result of more recent decisions many things are now known about the scope of the Ramsay Principle. The most important of which is that the Ramsay Principle is to be applied only in the context of a 'pre-ordained series of transactions' effected with a view to the obtaining of a tax advantage. It is also clear that the Principle is only to be used by the courts to discern the legal reality or legal substance of such a series. It is not a doctrine of economic substance over legal form, as such; but merely a rule of statutory interpretation which the courts will use in order to determine whether the transaction in reality effected by a taxpayer comes within the charge to tax.
Nevertheless, there are a number of uncertainties as to the application of the New Approach still remaining. The uncertain scope of the New Approach means that a tax adviser always has to consider carefully whether it may apply to an artificial arrangement of transactions. If it might, he should then determine whether it will be sensible to proceed with those arrangements if they may be successfully challenged.
The courts today are prepared to scrutinise the method which the taxpayer uses to avoid a liability to tax. If a person uses a particular sort of tax avoidance device—an artificial, pre-ordained series of transactions—the courts will ignore the steps which comprise that series and only consider the real, underlying transaction effected by the series (see Furniss v Dawson  STC 153, per Lord Fraser at 155). This underlying transaction has been variously described as 'the relevant transaction'; 'the end result of the series' and 'the true view' of what the taxpayer has done.
This change in judicial approach came about as a reaction to the artificial tax avoidance schemes which abounded in the 1960s and 1970s. Typically, a scheme would involve a complex series of transactions effected in quick succession according to a pre-arranged script. At that time it had been thought that the courts, when presented with such schemes, would adopt a formalistic and dissecting approach and apply the taxing provisions to each step in the series without having regard to the actual result of the series. It is, however, now clear that the individual steps which make up such artificial schemes may, for tax purposes, be ignored under the Ramsay Principle.