Magazine article Management Today

Taxation without Exemption

Magazine article Management Today

Taxation without Exemption

Article excerpt

The Inland Revenue is cracking down on both the salaried and self-employed. With the change in work patterns, the taxman is looking closely at severance payments too. Neasa MacErlean

If you're trying to get the best of the taxman these days, it helps to be rich and ingenious.

Alan Sugar of Amstrad falls into both categories. His decision to buy the building which houses London's Hard Rock Cafe and put it into his personal pension plan has been one of the most audacious moves taken by a taxpayer to reduce his tax liability in the '90s. The move will save him hundreds of thousands of pounds in tax relief. But before you try to emulate his bright idea by putting your house into your personal pension fund, bear in mind that you are probably playing in a different league and are therefore unlikely to qualify for the same sort of tax benefit. Tax relief in these circumstances is given only if the new owners can prove the investment is a strictly commercial one and that they have no intention whatsoever of living in the newly acquired property.

The only way in which Sugar's move should be taken as an example is as a reminder that investing in a pension (however unexciting it may seem) is the best way for most of us to get tax relief. Higher rate taxpayers can save thousands of pounds a year by making the maximum contributions permitted. While most people postpone making Additional Voluntary Contributions (top-ups to their company pension scheme contributions) until they are in their late 40s, even thirtysomethings would do well to think of making this sort of investment: on the whole people simply do not realise how much tax they could save and how much their pension fund would be enhanced if they started paying sooner rather than later.

Pensions apart, the Inland Revenue has become increasingly tight over the last few years on tax relief for both employees and the self-employed. But even a few years ago they were beginning to crack down: when a blonde barrister tried to argue that she should get tax relief on the black clothes she had to wear in court, claiming that they did not suit her colouring and were bought therefore `wholly, necessarily and exclusively' for work, she lost the case.

More recently the courts decided that salaried journalists should be taxed on any newspapers they bought for which they were subsequently reimbursed. In their wisdom, their Lordships decided that journalists do not have to read the competition to write their own articles -- yet more proof, if it were needed, that you cannot always expect sensible decisions from the judges sitting in the House of Lords. …

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