However, headlines of a ‘Robin Hood Budget’ confirmed the continued trend of increasing taxation on the wealthy. The UK now ranks second only to Italy within the G20 nations for the unattractiveness of its tax regime to high earners, and the Chancellor has stated that: “Looking across all the tax rises since the beginning of this global crisis, 60% of them will be paid for by the top 5% of earners”.
With the prospect of even more punitive taxation to follow after the election, tax planning has moved up the list of financial priorities for a wide range of individuals and organisations.
But is there anywhere left to hide?
After the Gaines-Cooper case, certainly not abroad if your business and family lifestyle remains focused on the UK. Evading tax by holding undeclared funds in offshore or low-tax jurisdictions has also become a less attractive proposition with penalties for such activity now doubled.
HMRC is also taking action on the avoidance of payroll taxes, with the introduction of anti-avoidance legislation designed to counteract attempts to circumnavigate income tax and national insurance contributions via the use of employee benefit, and other, trusts, and anti-forestalling arrangements that seek to avoid the new restrictions on pensions tax relief.
Even death brings little relief, with the inheritance tax nil-rate band frozen for the next four years.
These are fertile conditions for IFAs and tax planners to add significant value to their client relationships with some well-judged advice. However, the government has upped the ante by extending the “hallmarks” or definition of tax avoidance schemes, and introducing a requirement for third-party introducers to identify to HMRC any scheme promoters who contact them, along with lists of the clients to whom they have provided such schemes.
All these measures reinforce the attractiveness of compliance-based tax planning for UK residents and domiciles using cross-border life insurance products, both as a means to control where and when taxes are paid and as an alternative to non-disclosure or tax evasion.
The next two years will see increasing use of life insurance-based tax planning, keeping the providers’ new business teams busy while the companies prepare themselves for the impact of the Retail Distribution Review on their products, value chains and distribution. A busy time ahead!
This article first appeared in Acuity’s on-line Bulletin publication in March. If you are not currently receiving Bulletin, please email the following address with your contact details: [email protected]
