Friday, 22 June 2012

Who is 'morally tax efficient'?


Morally tax efficient?
Jimmy Carr has recently been hitting the headlines for the wrong reasons due to his aggressive tax planning.  Whilst not undertaking anything illegal, he has been called ‘morally irresponsible’ by David Cameron for channelling his income through an offshore company and receiving loans instead of a taxable salary.  He has since apologised and stressed that he will no longer be doing this. What interested me most about this issue was defining what is ‘morally acceptable’ tax planning.  I think Jimmy Carr crossed the line by using corporate tax planning mechanisms as an individual. This is clearly artificial and not using tax reliefs for their intended purpose.

Without introducing a simplified flat tax system there will always be opportunities for aggressive tax planning (for those that can afford it) that seeks to take advantage of complex tax reliefs and rules intended for legitimate and more deserving situations.

At Brewin Dolphin we advise on legitimate tax planning ideas for the purposes that they were intended. There is a long list but, for example, a private individual can save into a pension and receive tax relief at their marginal rate, as this is a genuine incentive to save for retirement.  They could also invest in venture capital and receive 30% tax relief as a genuine incentive to help small companies. Tax efficient saving via an ISA is permitted to encourage the saving culture. Business Property Relief provides a 100% inheritance tax exemption after 2 years to encourage investment in unquoted trading companies. These tax reliefs are there for a purpose and investors should be encouraged to make use of them where appropriate.

At Brewin Dolphin we do not advise on planning strategies and tax efficient investments if they appear artificial or not for their intended purpose.  So we believe all our clients are morally tax efficient and we will continue to assist them to be so.

John Fletcher
Divisional Director - Financial Planning

The value of any tax benefits depends on your own personal circumstances and all tax legislation is subject to possible change

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