Osborne shocked by millionaire tax avoidance
Chancellor George Osborne has expressed shock after looking at 20 anonymised tax returns of multi-millionaires who have exploited tax loopholes to legally reduce their tax bills.
The move could be considered political posturing after a tough couple of weeks for the coalition over the ‘granny’ and ‘pasty’ tax furores; however, it does prepare the ground for the anti-avoidance law consultation that was announced in the Budget.
After being shown the returns by HMRC, Osborne is now convinced that millionaires must pay a minimum rate of tax equivalent to about a third of their earnings, or a ‘tycoon’ tax.
He told The Telegraph:
“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.
I’m talking about people right at the top. I’m talking about people with incomes of many millions of pounds a year. The general principle is that people should pay income tax and that includes people with the highest incomes.
I’m not allowed to be shown the names of the individuals but I’ve sat with the most senior people at the Inland Revenue, the people who run some of the high net worth units there. They have given me examples, anonymised examples, and so we are taking action.”
The confidential study by HMRC found the top earners are using ‘aggressive’ avoidance schemes to reduce their income tax rate to an average of 10%.
According to The Telegraph it found that the country’s 20 biggest tax avoiders used the following three main 'loopholes' to legally reduce their income tax bills by £145m between them:
- Writing off business losses in one of their companies against their income tax bill
- Offsetting the cost of business mortgages or borrowing on buy-to-let properties against their income tax bill
- Taking advantage of relief on donations to charity
Richard Murphy, who warned in 2008 that the scale of tax avoidance was far higher than HMRC calculated, came up with a three-point plan for Osborne.
He said: “The first is re-estimate the issue. I’d suggest that involves talking to the very few people who have been right about it to date, including me. Second, definitions of abuse have to very clearly be redefined. The mantra, too readily accepted by HMRC ‘that it’s legal so it’s acceptable’ has to be confined to the bin. Third, we have to have comprehensive action to tackle this abuse. Now. Nothing less will do.”
From next year, the total amount of tax relief that any individual can claim will be limited to 25% of their income or £50,000, whichever is greater.
The proposal could lead to restrictions on philanthropic giving, however Osborne pledged to protect and encourage philanthropy.
He said: “I was very clear in the Budget that we are specifically looking at making sure we are still encouraging philanthropy and charitable giving. But that is a specific issue we can deal with.”