Tax planning should be simpler and fairer

Ashley Wassall

This week the global great and good, world leaders and enterprise elite, are meeting in the Swiss ski resort of Davos for their annual thrashing out of economic affairs.

Conversation will inevitably alight during the open forums and private meetings on freedom of expression, global conflict, climate change and central bank interventions, and the consequences of all of this for economic prospects around the world.

Lurking in the shadows of all of these key conversational pillars, however, is the spectre of inequality. Oxfam data published this week show, for example, 1 per cent of the world’s population will control more than the rest of us in aggregate by 2016.

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It is this subject to which much of the media attention has been devoted; and is the laudable imperative for the brave appointment of Winnie Byanyima, executive director of Oxfam International, as one of the six co-chairs of the forum.

I’ve been preoccupied with the subject myself, after last week I had the honour of hosting back-to back FT conferences in London and Birmingham on tax planning and tax-efficient investing.

In particular the sessions focused on government ‘investments’ into particular sectors through targeted tax reliefs, such as income tax-based incentives to back small companies through the enterprise investment scheme and venture capital trust regimes.

They also saw presentations on products which have been specifically designed to take advantage of reliefs offered, for example, to business owners to avoid them paying inheritance tax on their enterprise assets, or to encourage non-residents to invest in the UK.

This is where I started to feel a bit less enthusiastic. It is also where, depending on the colour of government we get in May, changes may be forthcoming that will have implications for the advice you offer wealthier clients.

Taking what I would argue is the least defensible mechanism first, we had a keynote on ‘business investment relief’, a new tax break created by the coalition to encourage the rich who hold money offshore to bring more into the country.

It allows any resident non-domiciled individual (and to paraphrase from our keynote, Tom Elliot of Crowe Clark Whitehall, you could spend a whole day debating how to establish or change domiciliary status) to invest in UK companies or assets without paying any tax.

Incredibly, unlike any other tax break, this includes residential property developments. Huge sums of money from the global super-rich are as a result flooding into the capital and contributing to rampant price inflation.

This will surely end if we have a change of chancellor in May. Even if we don’t, it should be revised anyway.

Elsewhere, we heard from Mr Elliot that changes may come to the newly re-named ‘business relief’ used by many to avoid inheritance tax, to coincide with an increase in the inheritance tax threshold being proposed by the Tories.

It wouldn’t raise much money, but I endorse the principle. The threshold for IHT is currently too low - it’s only two-thirds of the average house price in London, for example - but the solution to that isn’t a clumsy extension of unrelated tax breaks.