Business

What tax world are these people living in?

THE Panama Papers and David Cameron's family's financial affairs dominated the headlines earlier this month – and consequently the attention of most of our political leaders.

“Tax evasion, tax avoidance, lifetime gifts, offshore tax havens and family trusts” have left many confused about just what sort of a world our politicians and celebrities are living in.

And again, the Tories' mantra that “we are all in this together” appears rather misleading.

These complicated off-shore tax situations make for plenty of work (and money) for lawyers and bankers. But paying less tax and as little inheritance tax as necessary is something we should all be interested in.

What has also been clear in the past days are the many misunderstandings concerning some of the ways a tax liability can be reduced legally.

Tax avoidance is legal – but tax evasion is not; lifetime gifts do not attract inheritance tax (IHT) if the donor survives a further seven years and are permitted. There is a whole list of gifts allowed by Her Majesty's Revenue & Customs (HMRC).

Perhaps the most important regulation to remember is that gifts made from income (and which do not impact on the donor's lifestyle, ie they don't lead to a reduction in their standard of living) are permitted without reference to HMRC.

Much of the above activity leads us back to IHT and our annoyance at paying that tax, much of it on money on which we have already paid tax, at the end of our lives. We work hard to provide for our children's future and don't see why the government should take 40%, even after an allowance of £325,000 per person.

IHT is not only a sensitive issue, but also a vote winner.

In 2007 the then shadow-chancellor George Osborne announced to the Party conference that IHT would be raised to £1m per person when the Tories got back in power. It spooked Gordon Brown enough to postpone calling a General Election, which the experts agree Labour would almost certainly have won.

At last year's budget Osborne announce that IHT was going to be raised to £1m, boasting of “a promise made, a promise delivered.” As ever, the chancellor was being economical with the truth.

The 2007 “promise” was to raise the IHT threshold to £1m per person. His “promise delivered” raised the IHT threshold to £1m per couple – and then only if the couple owned property and had children – and this £1m threshold is only reached in 2020!

If you are childless and homeless (perhaps renting) your IHT threshold will remain stuck at £325,000, where it's been since April 2009, all the way through to 2020.

Many of Osborne's 'giveaways' are some way down the road when the small print is studied; while much of the additional tax measures come in sooner, like the extra 3 per cent stamp duty that is now payable on second homes.

Whether it's buy-to-let properties, pensions, individual savings accounts (ISA) and other asset/investment purchase, it's not the goal-posts that keeping moving, but the field itself. Trying to keep up to date is a full-time job.

Previous government policies can do a 180 degrees turn and come straight back to haunt you. Take those who turned part of their home into a self-contained annexe so that a senior or junior member of their family could live independently, but remain close.

It became apparent that Mr Osborne's extra stamp duty on second homes had, perhaps unwittingly, caught these “granny-annexe's” in its net. And attempts to wriggle out has only led to more confusion and, of course, complication.

:: Darren McKeever (dmckeever@ wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. For a free, no-obligation initial chat about your individual finances, call 028 6863 2692, email info@ wwfp.net or click on www.wwfp.net. Follow us on Twitter: @WorldwideFP.

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