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Appropriate avoidance

28th Apr 2016
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I read an article recently which argued that it’s not helpful to criticise those who are “merely making legitimate use of UK legislation in a lawful and appropriate way”.

Up to a point. The problem here seems to be in the word “appropriate”, which could mean all things to all men. All such comments tend to smuggle in a word which itself offers approval or disapproval.

In this case it goes on to say, in the context of David Cameron’s £200,000 lifetime gift, that it is, ultimately, legitimate tax mitigation through making use of current UK legislation introduced specifically to enable citizens to pass money to someone else, and either possibly or actually avoid a future IHT charge.

Which is true, though that legislation (PETs) was passed by a government which disliked the possible impact on the wealthy of Capital Transfer Tax and wished to ease the way for people who were likely to be its supporters. However, choosing whether you liked the government which passed the legislations is simply somewhere we shouldn’t go. Let us live with the laws we have.

So making a lifetime gift takes advantage of a “loophole” but that is exactly what the “loophole” is there for. It is (possibly) “mitigation” but not in my book “avoidance”, which seems to me to require the creative use of legislation to produce a result which was not intended when the legislation was framed. It is that creative tax planning that fuels the tax havens. And, while people may suggest otherwise for effect, professionals know the difference in almost every case.

There are of course aspects of UK legislation which encourage creative planning (some would say that the very complexity of the system leads people this way, but the cause and effect here is difficult to ascertain. The rules about domicile are a good example. The concept is a common law one, but it is legislation that writes it into the Income Tax acts where it really has no place when the major concept for taxation is residence

Otherwise you find that people take advantage of legislation designed to encourage a particular type of behaviour, as for example with the reliefs offered to those who might invest in the UK film industry. The economics of that industry are notoriously opaque at the best of times (when it comes to paying people off no film aver seems to make a profit) and it all helped to twist things round to provide a “virtual” loss which (whoopee!) could be offset against real income.

So it is not really all that difficult to detect avoidance. Constant fiddling with anti-avoidance legislation has achieved little, though: What is needed is to make it different by pressure on the states that facilitate it, especially since many of them are into money laundering and hiding the proceeds of crime as well. What it needs is the will.

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By caci-facial
29th Apr 2016 07:21

nice post

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