It seems that the line between sensible, legitimate tax planning and evading one’s moral obligation to pay tax has never been more blurred. Is this really the case or something that has been seized upon and perpetuated by politicians and the media?
A storm arose last week as a result of the revelation that David Cameron received a gift from his Mother of £200,000 on top of an inheritance of £300,000 following the death of his Father.
Shadow Chancellor John McDonnell said the Prime Minister had "effectively inherited £500,000 from his mum and dad and not paid a penny on it," which, he said, showed there was "something wrong with the system", yet in reality, this happens all the time to many people who inherit from their family.
This type of indignation has been levied at both sides of the political spectrum. Just before the 2015 General Election, Ed Miliband was, with similar tones, accused of avoiding tax by using a Deed of Variation* to pass assets that were originally passed to his Mother on his Father’s death in 1994, to him and his brother David.
Since 2007 Inheritance Tax (IHT) nil rate bands have been transferable between spouses and civil partners, but in 1994 this was not the case, so in passing all of his assets to his wife, Mr Miliband senior would have effectively wasted his own IHT nil rate band. Essentially the Deed of Variation was used to correct what was, from a tax perspective, a poorly drafted will.
So have either of these political leaders and their families been guilty of evading tax or even undertaking morally inappropriate actions? Absolutely not. In both cases the families have used mainstream strategies to try to pass wealth on through the generations, as tax efficiently as the law allows. Whether it be by gifting during one’s lifetime and hoping to live for a further seven years, or by using mechanisms to pass on assets by by-passing the original intended beneficiary.
The political opponents of each leader and the press have perhaps been guilty of demonising the motivation to save tax, yet the activities mentioned here are completely within the rules.
We provide advice to many families and businesses where reducing tax liabilities is a major motivation - this is not wrong, but a legitimate objective - we do not look for loopholes or aggressive ways to do this - we use the rules that exist to allow it, just as the Camerons and Milibands have done in these examples.
If IHT or any other form of tax planning is a concern to you or your families, please speak with one of our Financial Planning Consultants at any of our 15 office locations on 0808 144 5575 or email us: firstname.lastname@example.org.
*Deeds of variation allow wills to be altered after someone has died, and can be made at any time within two years of their death. As well as correcting any mistakes that were made in the original will, they also allow an estate to be divided so that further down the line there is less tax to pay.
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe