Take Advantage of Legitimate Tax-breaks

03.05.2016.

Don’t Let an MP Steal Your Tax Breaks.

Benjamin Franklin is credited with the origin of the phrase “In this world nothing can be said to be certain, except death and taxes.” The so-called Panama Papers and the subsequent expose of David Cameron’s father as an offshore investor, has intensified the debate about whether this is true for all of us. The Prime Minister’s failure to provide a timely response to questions on the subject led to cries of tax evasion and a huge debate focused on what constitutes evasion, avoidance or legitimate tax mitigation. MPs on all sides jumped on the bandwagon, despite having cheered in the introduction of the Lifetime ISA only weeks before.

The majority of us wouldn’t engage in or support tax evasion, i.e. a deliberately false declaration of earnings or wealth.  In times of financial hardship or economic recovery it seems morally dubious to deprive the nation of the tax revenue it so vitally needs, and evasion is clearly illegal.  But we might all have considered paying the builder in cash to avoid the VAT, something we probably don’t recognize as the tax evasion that it surely is.

However, there are many legal government schemes which enjoy tax incentives to encourage people to invest: hands up everyone who has put money into a personal pension or ISA – you are enjoying tax relief on the money that you save and the interest you receive.  Tax dodging? Absolutely not!

And why does the government create and promote these schemes?  What people seem to forget is that when anyone takes advantage of a legitimate government incentive scheme they are exchanging the tax break for some form of investment risk.  This might be through buying shares in companies, large or small, that are raising funds to establish or grow their business.  In turn this preserves or creates jobs, stimulates the economy and in the end raises more tax revenue than is lost through the original tax incentive.  Or it might be through putting money into a cash-ISA in a bank which uses the deposits to lend to businesses or to people looking to secure a mortgage to buy their home. Thus economic and entrepreneurial activity is rewarded and the country benefits.

Schemes which mitigate inheritance tax are also often held up as something only available to the wealthy to allow them to hand down their wealth untaxed when many others have nothing to pass down to their own family.  What is forgotten is that these assets have already been subject to income and/or capital gains tax and that inheritance tax is a form of double taxation – which is surely unfair?

As someone who has spent more than thirty years trying to increase the wealth of my clients, I am certain I have saved far more money for hard-working families who ran businesses for years, employed local people, supported other local businesses and over time managed to accumulate some wealth to pass down to their family, than I ever have for the supposed super-rich.

As a financial professional I would never encourage tax avoidance but in working with clients to create a secure financial future for them and their family or business, I would always look at taking advantage of the legitimate tax-breaks available via the following types of investments: –

INDIVIDUAL SAVINGS ACCOUNT (ISA) – TAX FREE growth and TAX FREE income

PERSONAL PENSION PLANS- TAX FREE growth and TAX RELIEF on contributions made

VENTURE CAPITAL TRUSTS (VCTs) – TAX FREE growth, TAX FREE DIVIDENDS and 30% TAX RELIEF for those who are willing to place their capital into a fund which invests in new ventures.

ENTERPRISE INVESTMENT SCHEMES (EIS) – TAX FREE GROWTH AND 30% TAX RELIEF for those who are willing to place their capital at risk and invest into funds that invest in new ventures.

INHERITANCE TAX PLANS – IHT efficient investment schemes that mitigate IHT in two years in exchange for investment into certain types of business that attract Business Property Relief.

TRUST FUNDS – Dynastic planning tools that use long standing tax laws and revenue rules to pass on wealth by gifting capital or other assets into trust funds for the future benefit of their chosen beneficiaries.

All of the above are perfectly legitimate arrangements used by many people up and down the country and all over the world to rightfully reduce their exposure to tax. All have inherent risks and some take years to become effective but all can work well providing the structures are put in place correctly and within the HMRC rules.

My view is that, far from being morally reprehensible, these tax-incentivised arrangements are a much-needed boost to economic recovery and those who are willing to place their hard-earned cash at risk deserve some reward for the greater benefit to the whole country in business and job-creation activities.  So go-ahead, use all your available tax-breaks without guilt or shame.  You worked hard for your money, you paid tax on it, now let it work for your future.  I’m sure an MP would!

 

 

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