With yet another tax avoidance scandal hitting the headlines and fresh pre-election promises to tackle tax avoidance being announced, it is not unreasonable to ask ‘what, if any, tax planning is acceptable?’ and ‘is there a difference between tax planning and tax evasion?’
In fact, with the amount of new legislation introduced year on year to tackle these problems, is it still possible to plan an individual’s tax affairs?
Well, it is fair to say that most tax avoidance schemes are aimed at large companies or the very wealthy, as by definition, they have the profits or wealth to be taxed. Unfortunately some of the rules introduced to prevent such tax avoidance do affect ordinary business and individuals, particularly partnerships, but in general, the good news is that most of us can carry on as normal.
For income tax, this could mean using personal allowances and lower rates of tax as much as possible or making pension contributions in order to benefit from tax relief at up to 45%. For capital gains tax, this might be splitting disposals before and after 5 April in order to utilise two years’ worth of annual exemption. For inheritance tax, using annual exemptions, marriage exemptions and the gifts out of income exemption should not be overlooked. It is also acceptable for a married couple or civil partners to arrange their tax affairs to benefit from the above mentioned allowances, exemptions and reliefs.
Where larger values are concerned, it is often worth checking in advance whether expected reliefs will be available on a disposal, transaction or death, as some advanced planning may ensure a tax liability will not arise. This is simply making sure that an individual or company’s tax affairs are in line with the conditions required for a relief. In contrast, ignoring or re-writing the rules to suit a particular set or circumstances is not acceptable, as some are now finding out.
This does leave a ‘grey area’, where things may not be appear as clear-cut. Fortunately, our knowledge of the legislation and case-law, along with experience of dealing with HMRC, can all assist with planning your tax affairs within the letter and the spirit of the law, so please do not hesitate to contact us if you need to clarify your own position.
