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Home > Opinion > Dennis Hall

Washing my hands of tax planning’s dirty deals

Some schemes seem to reward the manager for coming up with novel ways of stretching qualifying rules to their limit.

By Dennis Hall | Published Oct 17, 2012 | Your Industry | comments

I have never really liked the whole area of aggressive tax planning, or those products that fly close to the edge of what normal people would deem acceptable. I have met the purveyors of these schemes in the past, and usually come away feeling I should wash my hands – there is a grubbiness to it that I am not comfortable with. The grubbiness even manages to infiltrate areas I consider to be legitimate tax planning, like enterprise investment schemes and venture capital trusts.

There are a number of schemes around that appear to rely on the tax relief alone to generate the bulk of the returns, with the manager taking a big slice of the investment returns. In fact there are some schemes that seem to reward the manager for coming up with novel ways of stretching the qualifying rules to their absolute limit in order to get the tax relief, and which then charge an arm and a leg for it. They are not being paid for managing investments, they are being paid for managing tax reliefs, and that strikes me as being immoral.

There are some schemes that are set up to be as low-risk as possible, and where the returns look more like contractual interest payments rather than returns on equity. The fee structure pays the manager handsomely whereas if there was not any tax relief, the investor would make a loss. In my mind, the poor old taxpayer is being duped into supporting just one business, the VCT/EIS manager, rather than the UK’s small companies.

But these managers are not the grubbiest people around – there is another group of people that hang around the periphery of financial services and call themselves tax consultants. These are the people that have a fee structure that looks a lot like “stick your finger in the air, see which way the wind is blowing, and charge what you can get away with”. There are no hourly rates, no fixed fees, no schedules of charges, just a desire to make as much as they can and move on to the next one. You are paying for their intellectual property apparently. But when that intellectual property is subsequently found wanting, they are nowhere to be found.

I recently looked at the costs of establishing an inheritance tax scheme from a reputable firm of qualified trust specialists (solicitors) and compared it with a “specialist” tax consultant. The difference was staggering. For something that broadly did the same job (the end result was not dissimilar), the reputable firm would charge less than £20,000 with no significant ongoing costs, whereas the others wanted approximately £100,000 (10 per cent of the taxable estate) and ongoing retainers of £500 per month.

Grubby does not really express my feelings.

I have met the purveyors of these schemes in the past, and usually come away feeling I should wash my hands.

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