Planning Essential Budget Continues Tax Avoidance Crackdown

Chancellor Philip Hammond’s November Budget statement was never going to be a barnstorming collection of radical tax changes or seismic policy shifts. While the UK economy continues to grow, the 1.4% projected by the Office for Budget responsibility for this year is well below the long-term average of more than 2.0%, a situation that allowed the Chancellor very little room to cut taxes or increase spending.  

Mr Hammond did manage to pull one taxation rabbit out of hat with an announcement that stamp duty on homes worth under £300,000 was to be cut. But for the most part he made only minor changes to the personal taxation regime.  

But the Chancellor did include some clear statements of intent that were directly relevant to Sophisticated Investors and High Net Worth individuals, not least on the subject of tax avoidance.   

Thanks to the Panama Papers (and latterly the Paradise Papers), policymakers have come under increasing pressure to crack down on tax avoidance and tax planning vehicles that conform with the letter of the law while contravening the intention. Thus it would have been surprising if the Chancellor hadn’t flagged new measures to reduce abuse and push up the tax take.

Penalising Enablers

These included new rules on disclosure, which will affect tax advisers from January 18 2018. Those who benefit financially by ‘enabling’ others to implement tax avoidance strategies will be subject to penalties if the arrangements fail. The penalties will apply to those who design, market and advise on tax schemes. In addition, there will be tighter rules on offshore trusts.

A Direction of Travel

If these changes appear relatively modest, they represent a direction of travel. As the Treasury Paper that accompanied the Autumn Statement – Tackling Tax Avoidance, Evasion and Non Compliance – points out, around 100 measures have been introduced between 2010 and 2017 to prevent abuses of the tax system.  

The ongoing crackdown has focused particularly on ‘marketed tax avoidance schemes; offshore trusts and the various strategies used by corporate entities to reduce their own tax bills,and those of selected employees.

And for High Net Worth Individuals there are clear risks that apparently legitimate arrangements may fall foul of HMRC scrutiny and be deemed abusive,

Enterprise Investment

The Budget also introduced apparently small but significant changes to the Enterprise Allowance Scheme (EIS) and its sister Seed Enterprise Allowance Scheme (SEIS). Both schemes have been widely praised for boosting financial support for  startup and early stage companies by using tax reliefs to effectively de-risk investment. However, under the new regime, tax reliefs will only be available on growth companies, when – as the Treasury puts it – there is a real risk to the capital. Investment in companies where the purpose is wealth preservation will be excluded from the scheme. On a more generous note, the Chancellor announced higher limits for tax efficient investment in knowledge intensive companies.   

Elsewhere in the Budget, well off savers gained  from an increase in the lifetime pension allowance to £1.03m.

Wheels in Motion

If Autumn 2017 gave us a safety first budget, it also provided a reminder that the investment and tax planning landscape is constantly changing. And in particular, when it comes tax planning, what was acceptable five years ago, will not necessarily escape the critical scrutiny of HMRC today or in five years time.

As such it is essential that High Net Worths and investors keep their tax and investment strategies constantly under review.  

The Route — City wealth club provides Members with comprehensive and effective tax advice that is also non-aggressive. As such it ensures that Members can reduce their tax bills in full compliance with the letter and spirit of regulations. Members needn’t pay more tax than they have to, but The Route’s expertise ensures that all the arrangements are safe.

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