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<b>Opinion:</b> Tax, class and stereotypes. By Simon Sweetman

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21st Apr 2006
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It was of course Leona Helmsley who said "only the little people pay tax". Everybody agrees, of course, but they're not always clear who the little people are. The reaction to the changes in trust law, for instance, will affect "millions of wills", and rising house values will bring "millions" of people into the net for Inheritance Tax.

Try this. Ask a solicitor what he thinks the median wage is in the UK and you'll probably get an answer in the region of £40,000 a year. It's actually close to £21,000. Some people also believe that "most" people pay a higher rate tax and are exposed to IHT, when the figures for each are still below 10% of the working population and the number of estates respectively.

There is a section of English society which leads a strange insulated life, a minority that believes that it is a majority. They tend to be white collar professionals in traditional occupations: solicitors, accountants, estate agents. They read the Daily Telegraph and they send their children to private schools: paying money not so much for an education but in an attempt to ensure that their children are properly acculturated and will not seek to do something different. They hate Tony Blair (though many of them voted for him in 1997) but they probably think David Cameron is a bit weird. They are deeply suspicious of Europe (though these days they probably own a place in France).

It is beyond question that we have an irrational tax system. When you can be paying higher rate tax and also claiming tax credits, or being paid the national minimum wage and still paying tax, something seems a bit loopy. But on the whole we have to live with that, because the system grew rather than ever being planned. Organic, you could call it. It is also amazingly complicated. Because of that this is one of the areas where people's bullsh*t detectors don't work. And so they are ready to believe anything.

In particular, they believe that the rather minor changes to the taxation of trusts announced in the budget will rend the fabric of society from top to bottom. After all, everybody has a nil rate band discretionary trust in their will, don't they? Well, no, because the vast majority of people do not have the sort of assets that call for that sort of thing; not many people have substantial investments beyond the inflated value of the family home. Oh, and the tax treatment of ordinary discretionary trusts hasn't changed anyway. And most of this doesn't apply to existing trusts, only to new ones.

And with a socialist government in power (that's a good test ' anyone who refers to this government as "socialist" is living on another planet) redistributing away, and given the notorious effects of IHT, then surely wealth in this country is decreasing rapidly.

Well, no it isn't. There is a firm called Tulip Financial Resources which studies the spending habits of the rich, and according to them the liquid assets owned by people in this country have increased by 50% in the last five years. The increase, overwhelmingly, is at the top end.

They use a standard classification. Four per cent of the population could be regarded as reasonably affluent, with average liquid assets (excluding their homes) of £144,000, while 0.7% of us have average assets of £665,000. Then there are about 135,000 seriously rich people, averaging £6.4 million, and the thousand richest average £70 million each and have seen their assets grow by 79% in the past five years. And then there's the other 95%, many of whom have no liquid assets at all and many of whom ' especially in the 18-40 age bracket or over 65 ' have no liquid wealth at all: indeed many will be substantially in debt.

Now that is probably misleading, because it is not just that existing wealth has increased, but that more and richer people are coming to Britain. And why? Because UK tax law ' especially for the non-domiciled ' is seen as a soft touch, and the UK ' far more than the USA - is seen as a tax haven for the super rich. Is this the future for post-industrial Britain? Not managing the world's business but managing the assets of the astonishingly rich?

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By geoffemtacs
25th Apr 2006 09:49

Amen
I do sometimes feel that I'm in the wrong profession. So much of this profession seem geared to establishing the minimum tax liability for someone whose profits are a given amount. The fault lies partially in human weakness and greed, but also in the system.

If someone makes profits or has earnings of £30,000, their tax and NI should be the same regardless of how they structure their business vehicle. If people earn less they should pay less in tax and also a lesser percentage of what they earn. If they earn more they should pay a higher percentage of what they earn.

Whilst there are ways of structuring people's affairs to produce different figures, the sad truth is that most people will plump for the one that produces the lowest tax bill, even if it means a non-natural structure being used. And we as a trade make a living out of this sort of manipulation.

Where Simon's right is to point out the organic ways in which tax law grew. In an ideal world we wouldn't start with the tax (or any) structure that we have right now and the chance of any change being brought in is slim as it would mean disadvantaging some.

Where I think he's wrong is in saying this is not a socialist administration. Insidiously Gordon Brown has effected a transfer to boost the lot at the bottom end of the earnings curve, not at the expense of the top slice of earners, but at the expense of those in the middle. Some redistribution, but no pips have been particularly squeezed. Hence any move to cut down on IHT avoidance is to be applauded.

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