HMCR has, for the first time, published the true figures for tax avoidance* by the UK’s mega-wealthy.
The findings revealed almost 1 in 10 people earning £10million or more per year are paying less than the 20% basic income tax rate.
And that figure increases up to 25% for the high net worth individuals (HNWIs) who pay less than 40% tax.
But is tax avoidance a risky strategy, and is there a better way?
First, while often not in the “true spirit of the law” tax avoidance
schemes – essentially loopholes – can be legal but can also carry a
higher likelihood of eventual audit.
The vast majority find the tax avoidance endgame means paying it all back, albeit some years in the future, in addition to the accountant’s fees.
Second, there is an inherent expectation that the uber-wealthy are somehow privy to special tax advice and treatment reserved for, well, the uber-wealthy.
But like the lyrics from George and Ira Gershwin’s famous musical opera Porgy and Bess: “It ain’t necessarily so”.
The problem remains that the rich and not-so-rich alike are focused on
avoidance and wealth protection instead of better investment practices
to achieve both aims.
Those familiar with the Treasury’s now patent response to any usurpers of its holier-than-ever tax system; a crackdown, would suggest HMRC warnings are an empty war cry designed to vilify the wealthy and through fear, bolster the public purse.
Or worse, that the Treasury can not enforce its authority due to more internal austerity experience and loss of resources than the PIIGS Euro-nations consortium will ever know.
Don’t be fooled by that.
There are better ways to legally protect and grow your wealth while retaining access to your money and minimising tax burdens.
Consider this:
Let’s say you had £1,000 earning 1% per year - just like what you earn today if you put your cash into a bank account.
And let’s also say you deposited that money way back in 1969.
If you checked your account today you’d have about £1,500.
In other words it took you 43 years to earn £500 on the original £1000.
And you can’t retire on £1,500.00, well you can but not for long!
Now let’s say that instead of putting the money in the bank you asked somebody back in 1969 what to do.
You told them you wanted an investment that was safe, would allow you access to your money if you needed it, and would have a shot of a better return than forty years in the bank.
So you put that £1,000 a fund like M&G Recovery – which was launched in May 1969.
Today you would have about £422,000.
That’s called compound interest!
And for you doubters out there that a pension is worthwhile, if that
same £1,000 was put in a one-off pension plan, net for a 40% tax payer,
you’d have a cool £700,000 today.
Now imagine if that investment was £10million instead of £1,000!
The point here is two-fold; focus on making your wealth work for you instead of after-the-fact tax avoidance schemes and don’t entrust your retirement to a bank teller – no offence intended.
