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Tony Wickenden: What tax haven status could mean for Britain

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So it seems Brexit is to be the “hard” version. And in among the (some might say almost jingoistic) rhetoric in Prime Minister Theresa May’s speech on the matter two weeks ago was an interesting observation of the possible tax consequences of a “no deal” scenario.

May made it clear if an acceptable deal with the EU could not be struck, the UK would leave it with no deal at all and seek its own trade agreements with other nations around the world. We would also look to lower (presumably corporate) tax rates to help attract business to the UK. This is particularly interesting.

Low tax has been used by a number of jurisdictions around the world to attract business. A unique selling point, if you like. But such deals have been seen by the EU as a challenge, and we have witnessed consistent action to prevent unfair tax competition.

That said, such challenges (such as those made to Ireland and the Netherlands in relation to alleged unfair deals on tax made with large multinationals) have to be made in the context of member states’ right to set their own tax rates. Full tax harmonisation does not yet exist within the EU, of course. And in pursuing such a strategy, the UK would naturally no longer be an EU member state.

We also have the wider efforts of the EU and the OECD to consider, though these exist to ensure countries pay tax on profit generated through trade in member states, as opposed to booking profits actually generated in one higher tax state in a low/no tax jurisdiction.

If the UK becomes a tax haven, then trading here would not require any attempts to “export” profits because our rate would already be attractively low. That would be the point of the strategy.

Evidence of the UK’s commitment to doing all it can to retain important business can be found in the reassurances given to Toyota that it will not be commercially harmed, regardless of what kind of Brexit emerges. There is no more available detail on this but the broad encouragement recognises that legitimate state financial assistance – however it is given – can influence behaviour.

“If the UK becomes a tax haven, then trading here would not require any attempts to ‘export’ profits because our rate would already be attractively low”

The planning position

Clearly, there are other factors that will contribute to the decision making – and easy access to the EU marketplace is a very important one. A government financial incentive can help to neutralise any additional costs but the loss of (or diminished) access to a significant customer base has wider negative connotations. HSBC appears to have this in mind, considering its reported plans to move more than 1,000 banking jobs out of the UK. Uncertainty is not helping decision-making at the moment.

I have written in past articles about the use of low corporation tax to retain and attract business. I not only referenced the UK’s own already low rate but also looked at some of Trump’s proposals – notably reducing the rate to as low as 15 to 20 per cent – to encourage businesses to book profit and repatriate funds currently held offshore. In pursuing a low tax strategy, the UK has to recognise that it will not be without competition.

Leaving business aside for a moment, we know tax can be a powerful motivator for individuals. High tax rates have the power to generate anxiety and anger, which are powerful drivers of action. Financial planners are very aware of this. The impact of income tax, corporation tax, capital gains tax and inheritance tax can all be used to drive essential planning.

The financial planner’s knowhow and expertise in achieving tax reduction is an important factor in the value received in return for the cost of advice and wealth management.

For those with access to this knowhow, the UK could already be a tax haven with legitimately super low (or nil) rates on income, capital gains and estates.

Tony Wickenden is joint managing director of Technical Connection.
You can find him tweeting @tecconn


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