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A consumer&#39s view

The essence of a good tax avoidance scheme is that not too many people know about it or take advantage of it. If large numbers of wealthy individuals start piling in, the loss of tax revenue to the Treasury reaches a level where the Chancellor feels obliged to plug the gap.

The latest stakeholder scheme from Standard Life – Immediate Vesting Personal Pension Select – has received high-profile marketing by some of the heavyweight IFAs in the industry such as Hargreaves Lansdown, retirement specialist Wentworth Rose – and no doubt many others. This is likely to hasten the day when the Chancellor is forced to admit that he has been too generous with stakeholder tax concessions. This really could be a case of “buy now while stocks last”.

With the sort of clout that these IFAs can muster, the take-up of Standard Life&#39s stakeholder by wealthier individuals as a tax avoidance scheme seems pretty well assured. While the Treasury insists that it always intended stakeholders to be available to all – including children – it is difficult to see the merit in giving tax bonuses to the rich.

The Standard Life scheme (and no doubt plenty more being marketed by other life offices) takes full advantage of the generous tax concessions on stakeholders for non-taxpayers.

But it also uses the facility for the over-50s to retire immediately, reducing the net cost still further. This makes the sums on stakeholders look even more attractive for these older non-taxpayers.

As predicted by more than a few pension experts, the biggest take up of stakeholders by individuals appears to be coming from wealthier families investing the maximum in stakeholders for non-working wives, children and grandchildren to take full advantage of the generous £792 tax bonus available to these non-taxpayers.

The bonus reduces the net cost to £2,808. But if the investor is a non-taxpayer and over 50 they can take immediate retirement and £900 comes straight back as tax-free cash – reducing the net cost still further to £1,908.

But has the Treasury had a close look at the potential cost of this? There are around 4.5 million married couples with non-working wives who also have investments and might therefore be interested in the Standard Life scheme.

In addition, there are around 2.6 million wealthy, higher-rate taxpayers, who will be very happy to pass money to a non-taxpaying wife to invest in a stakeholder – particularly if it buys them £2,500 of annuity for a net cost of just £1,908.

Assuming that most of this wealthy 2.6 million will take advantage of the tax bonanza, the total loss to the Revenue is over £2bn a year.

In addition, there are probably at least another 1one million to 1.5 million couples with non-working, and therefore non-taxpaying, wives where the husband can afford to make a contribution on his wife&#39s behalf either from savings or income. This will produce a further reduction in the income tax take of £1bn a year.

But this is just the start. Stakeholders offer a perfect way to use the inheritance tax laws to pass money to children and grandchildren using the “normal regular expenditure” provisions. For every million grandparents who do this for, say, two grandchildren, the Treasury is looking at further tax loss of £1.5bn.

And all of this is going to those relatively wealthy individuals who will probably never qualify for any social security benefits other than the basic state retirement pension anyway and would therefore never be a burden on the state. Is this what the Chancellor intended?

It is worthwhile reminding Gordon Brown that even a Tory Chancellor, Nigel Lawson, realised that tax relief on a deed of covenant which allowed wealthy parents to get a big tax subsidy to fund higher education for their children was socially unacceptable and a waste of well over £1bn a year of taxpayers&#39 money.It was abolished in 1988.

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