I have on my desk a newspaper with the headline Tax avoidance? Everybody does it, says Tory Donor. Does everybody do it?
The answer depends on what you mean by tax avoidance. At one level, if I take part in the most outrageous tax avoidance scheme where, for example, a tax loss is conjured out of thin air, most people would accept that I was seeking to avoid tax.
But what happens if I put my savings into an ISA? Surely I am also avoiding tax, because if I used an ordinary bank account I would pay tax on the interest.
Most people would, I believe, say that that was OK because the avoidance was government sanctioned – but at one level it is still avoidance.
One of the many problems over the current debate (if that is not too dignified an expression) is whether there is “good” and “bad” avoidance and where the boundaries should lie.
Where somebody is simply ensuring that they are claiming all of the reliefs which they are entitled to, or structuring a transaction to maximise tax efficiencies, we were reasonably comfortable that that was “tax planning” and was acceptable.
By contrast, transactions entered into for no economic purpose but purely to create a tax advantage were seen as avoidance.
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But I am not sure that this distinction holds any more. The shifting sands of public and judicial opinion are such that nobody any more can say with any certainty where the limits of acceptable tax planning now lie.
HMRC’s current line on avoidance is:
“Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law.”
That is quite a narrow interpretation and seems to leave open room for individuals, families and businesses to organise their affairs in a sensible way. The current GAAR guidance takes broadly the same line.
But how safe is this? Would I be pilloried in the court of public opinion if I open an ISA, or transfer money to my children now so that it is outside my estate for Inheritance Tax purposes? I hope not – but at the moment I am far from certain that this is the case. (PS – in case my children are reading this, please note that I am speaking hypothetically!)
Andrew Hubbard is a tax partner at Baker Tilly.
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