Tax Avoidance Is Not the Same as Tax Planning; ADVERTISING FEATURE Independent Financial Advice
ACCORDING to Paul Brokenshar, of Investec Wealth and Investment, tax avoidance schemes are a relatively hot topic at the moment and HM Revenue & Customs have produced guidance on what they mean by tax avoidance.
He reports that they state "tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended.
It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter - but not the spirit - of the law."
And he stresses that they make it clear that tax avoidance is not the same as tax planning, which involves using tax reliefs for the purpose for which they were intended.
For example, claiming tax relief on capital investments, saving in a tax-exempt ISA or by claiming tax relief on pension contributions are all legitimate forms of tax planning.
While such actions may reduce the total amount of tax paid, they are certainly not tax avoidance because they involve using tax reliefs in the way that Parliament intended when it passed the relevant legislation.
Paul says: "Higher-rate taxpayers naturally have the most to gain from tax planning, however, the Government has significantly reduced the availability of tax relief for pension contributions and the amount one can shelter from tax within ISAs is also limited.
"So, what other steps can higher rate taxpayers take?" He says offshore investment bonds should be a key consideration for higher-rate taxpayers as an investment portfolio which is held within an offshore bond will not be subject to either Capital Gains Tax or Income Tax, which, in turn, equates to an uplift of up to 66% on investment income for higher rate taxpayers. …