My last couple of articles have been looking at the possibility of the UK becoming a tax haven if we cannot obtain an “acceptable” Brexit deal from the European Union.
I have also observed how, with the benefit of advice, someone living in the UK can already experience financial life in a virtual tax haven.
By this I do not mean, of course, a uniformly low rate of tax can be available to all. However, individuals and businesses can benefit from advisers that know what allowances, reliefs and strategies are legitimately available and how to use them without fear of challenge.
And we should not underestimate the strength of such fear. HM Revenue & Customs has done such a great job instilling it, which serves it very well.
Indeed, when it comes to anything remotely resembling a reduction of one’s tax bill, the public become similar to the Arsenal team walking out onto the pitch at Stamford Bridge; shaking in their boots and expecting defeat.
Seriously, though, there is a genuine sense of concern over any suggested action that results in an attractive tax saving, which can cause even the most acceptable strategies to be rejected by those who could legitimately benefit.
This fear-driven resistance to tax saving extends to using carry forward relief for pension contributions, many aspects of inheritance tax planning, anything at all offshore and business property relief schemes, to name but a few.
On business property relief, one can see how an arrangement that is IHT effective after two years, but still remains completely accessible until the investor’s death, might seem a bit too good to be true. Especially if you have just the remotest idea of what the gift with reservation and pre-owned assets tax rules are attempting to prevent. But legitimate and valid it is.
So, how does one achieve this acceptable tax haven status?
“There is a genuine sense of concern over any suggested action that results in an attractive tax saving.”
Well, on income tax, consider that through a combination of any or all the standard personal allowance (£11,000), personal savings allowance (£1,000/£500), nil rate starting band (£5,000) and the dividend allowance (£5,000), an individual could look to receive up to £22,000 in tax-free income. Ok, that full £22,000 might not be available for everyone but it is a very appealing upper end target.
Meanwhile, the capital gains tax exemption stands at £11,100 per annum, available to every individual on a yearly use it or lose it basis. There are some anti-avoidance (bed and breakfast) rules to bear in mind but regular, non-contentious use of the exemption can lead to fully realised investments being CGT-free.
As mentioned above, estate planning can be constrained by the gift with reservation and pre-owned assets tax rules, which prevent a gift if there is continuing donor enjoyment of, or access to, what has been given.
But legitimate use of trusts can overcome these constraints. Using the previous example, business property relief arrangements enable the best of both worlds after two years’ ownership.
It is helpful to see the extended disclosure of tax avoidance schemes provisions will not apply to the main trusts provided as drafts by the financial services sector or to ordinary business property relief arrangements.
And then there are pensions, Isas, venture capital trusts and enterprise investment scheme investments: all highly tax-efficient in their own way.
All the strategies and investments I have mentioned are specifically provided for – and draw their tax efficiency from – the legislation. They are not founded on exploiting loopholes; just on the use of reliefs and exemptions intentionally legislated.
In accessing the right mix of tax reliefs, exemptions and efficiencies, advisers can deliver their very own Government-approved tax haven in their own back yard.
Tony Wickenden is joint managing director of Technical Connection. You can find him tweeting @tecconn