Tax planning still perfectly possible


Many people who put their mind to it could be paying little or no tax just like some of the big earners, according to Ann Bibby, tax partner at the Birmingham office of international accountancy firm Mazars.

Her comments followed revelations by the Treasury that almost one in ten of those earning more than £10 million a year are paying less than the 20 per cent basic rate of income tax, Chancellor George Osborne’s controversial attempts to crack down on evasion, and the furore over fears that donations to charity will be hit.

She said: “Depending on one’s personal circumstances, it should be relatively straightforward for an individual to reduce his or her tax rate to ten per cent or less.

“And, of course, it is enshrined in case law that each person has the right to manage their affairs in such a way that legally minimises the tax that might otherwise be due. So it is a little surprising that the Chancellor is shocked that some wealthy people in the country were regularly paying virtually no income tax.

“It is also a confusing message – on the one hand he is saying that this is being achieved through abusive, aggressive, though perfectly legal, planning and on the other that this is down to claiming Government-approved reliefs. It seems clear that the ground is being prepared for a new ‘wealth tax’ next year.

“Reliefs most likely to be affected are loss reliefs and relief for loan interest paid … but the Government is backtracking fast on the charitable giving issue.”

And she highlighted just some of the ways in which an individual could reduce their tax liability in a legal way.

She said: “Business Property Renovation Allowance (BPRA) is proving very popular as it allows investors to pay as little tax as they choose by investing in commercial property while taking the bulk of the cost as a write-off for tax. There is no upper limit on the amount which can be invested, no limit on the amount of tax relief and net cash outlay is reduced by gearing.

“Other investment reliefs available include Enterprise Investment Schemes (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs).

“Despite the Chancellor’s ‘shock’, the tax breaks have actually been enhanced which make these investments potentially more appealing.”

EISs are designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares including 30 per cent income tax relief on up to £1 million of investment, CGT exemptions, CGT shelters and IHT exemptions.

SEIS is designed to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by the existing EIS – from April 6 tax relief of 50 per cent has been available on subscriptions of up to £100,000.

VCTs are intended to encourage individuals to invest indirectly in a range of small higher-risk trading companies through HM Revenue & Customs approved Venture Capital Trusts. Income tax relief is available at 30 per cent for up to £200,000 of investment a year and can shelter dividend income from tax as well as CGT exemption.

She said: “Clients are now considering these investments as a much more ‘mainstream’ way to reduce tax bills.

“But detailed advice should be sought before implementing any of these solutions.”

Legislation is due to be introduced in the Finance Bill 2013 to apply a cap on those income tax reliefs which are currently unlimited.

Draft legislation will be published for consultation later this year.