With reports that wealthy individuals are ‘hiding’ at least $21 trillion of assets in offshore tax havens, it is little surprise that the UK government intends on continuing its crackdown on tax avoidance.
The Price of Offshore Revisited study, which looked at the amount of wealth in offshore tax havens at the end of 2010, concluded it was equivalent to the size of the US and Japanese economies combined.
If this figure is accurate (and some suggest it could be a conservative estimate of the true amount), then the potential for lost tax revenues is staggering.
As a result, the government is planning to focus their attention on “cowboy” financial firms which promote “aggressive” tax avoidance schemes.
They would do this by forcing such firms to disclose the names of their clients.
This crackdown raises the question of what is illegal and what is simply considered to be unfair. Whilst many of the loopholes being exploited in the name of aggressive tax avoidance do not result in any illegality, we have already seen some schemes denounced as “morally wrong”.
All of us have the legal right to structure our tax affairs in such a way that we pay the least necessary amount of tax. In such austere times, whether it is right and fair to do so is a difficult judgment to make.
Anyone using the more aggressive tax avoidance schemes – to reduce the amount of stamp duty paid on a property purchase, for example – should be fully aware of the consequences. There is a significant risk that using these schemes will be a costly and potentially embarrassing exercise in futility, given the current government policy on tax avoidance.
Where tax planning does still make sense, and is considered to be morally ‘right’, is the use of well established tax planning tools and principles.
Making pension contributions to obtain the income tax relief, investing in an ISA to protect investment returns from tax charges or splitting the ownership of assets between husband and wife to best use tax allowances are all generally acceptable tax planning methods that we believe are unlikely to be challenged by government.
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