Safe Tax Planning


HMRC’s latest weapon in the battle against tax evasion and avoidance is the introduction of new penalties against ‘enablers’ of unacceptable tax avoidance schemes.

But should this be a concern for clients wanting to be more tax efficient? The simple answer is no, provided you stick with tried and tested solutions. This includes investing in pensions, offshore bonds and ‘packaged’ IHT solutions, such as loan trusts and discounted gift schemes. All of which are perfectly acceptable.

Evasion v Avoidance

There is a clear distinction between evasion and avoidance.

– Evasion is illegal. It involves those individuals or businesses who deliberately don’t pay the taxes they owe. For example, holding money in ‘secret’ accounts offshore and not declaring the interest. Or a failure to declare cash in hand earnings. In recent years these situations have been dealt with by exchange of information agreements between countries, and with amnesties allowing taxpayers to settle their liabilities before any legal action is taken.

– Tax avoidance schemes, on the other hand, are designed within the letter of the law but not necessarily in the spirit of legislation. They serve little purpose other than saving tax.

Acceptable planning v Avoidance

Individuals are allowed to arrange their financial affairs to make full use of the allowances and exemptions on offer. This includes transferring assets between spouses/civil partners to make use of two sets of allowances.

The tax system is not just about raising tax. The Government introduces tax breaks from time to time to influence behaviour. No one would consider tax relief on individual payments into pensions as avoidance – the legislation is specifically designed to encourage people to save for retirement.

With regard to discounted gift schemes, HMRC has even issued detailed guidance on how discounts should be calculated.

The word ‘offshore’ can often strike fear in the minds of clients, probably down to the number of negative news headlines involving schemes with some kind of ‘offshore’ element. But offshore bonds are not affected. They are strictly controlled by tax legislation which not only prescribes how they will be taxed, but also places an onus on providers to supply ‘chargeable event’ certificates to bondholders and the HMRC whenever a taxable gain arises.

HMRC are more concerned with the minority of individuals and companies who bend the rules. The schemes used are often complex (not to mention costly) and, although legal, involve artificial transactions which serve little or no purpose other than to produce a tax advantage.

The bottom line

Clients should be reassured that planning with the tried and trusted is fine – but if it looks too good to be true, it probably is and should be given a wide berth.

If you would like more information on tax planning opportunities centred on your personal circumstances, please contact us >>

By Tony Czypionka | Accountant and Tax Adviser

Tony is the Accountant and Tax Adviser at Mantle Financial Planning Read more >>

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