Tuesday, 19 April 2016

Talking about tax avoidance: weasel words

With recent revelations about rich people legally avoiding tax, it seems a good time to tell this story.

In late 2013, I received an email telling me that I could potentially save huge amounts in tax on my pension. I thought this must be a particularly sophisticated spam: poverty in the UK was rising fast, and I have high earnings, so why would pension rules be changed to benefit me? But no, I checked it out and it was all legal and above board.

All is made clear in this piece*. The phraseology has some gems: I particularly enjoyed 'the appropriate crystallisation event, such as the point of death', but behind all the talk of accrued benefits and recovery tax charges, the message seems to be that the Government had introduced a new measure that would increase the amount of tax paid by rich people, but HMRC had immediately provided a legal means for avoiding this, 'Fixed Protection'.

I'm fascinated by the use of language: the word 'protect' has entirely positive connotations: my online dictionary defines it as 'keep safe from harm or injury'. We hear of tax 'shelters', 'tax-advantaged savings vehicles' and suchlike. But what is achieved here is tax avoidance by rich people – all aided and abetted by HMRC.

If you have money and you talk to solicitors or financial advisers, you'll find that the default assumption is that you want to pay as little tax as possible. I first came across this when making a will: the solicitor concerned started describing how I could set up a complex trust that would mean less tax would be paid on my estate. I don't have dependents so this struck me as particularly pointless. I'd be dead and wouldn't care. The solicitor looked at me aghast and clearly thought I was barking mad.

I'm not a saint and I'm not an idiot. I have some savings. But I live a comfortable life and don't need to squirrel away vast amounts of dosh. And I grew up in the 1960s when, although things weren't perfect we had a reliable National Health Service; schools had adequate resources; there were grants to support people through university. The current generation may find it remarkable that until I was about 30, I never saw a beggar on the streets of any British city. Now we have food banks. An equable society that looks after the most vulnerable costs money, and that money comes from taxes.

I'll leave the last word to J.K.Rowling, who is one of the few rich people who seems to get it:

I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles. 

A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft’s idea of being a mug.

*I found this on Google search: I don't have any dealings with this firm of solicitors, but as far as I can tell, what they say matches the advice I had earlier, and is pretty standard


  1. That sounds like a typical "grandfathering" arrangement. If you are no longer saving in a retirement scheme or agree to stop saving then the old rules apply to you. If you are still saving then the new rules apply to you.

  2. So pleased to see that piece from JK Rowling, she is such a great person. I loved 'The Casual Vacancy', hope she writes more like this!

  3. It's a principle of good legislation, as well of good science, that your intervention should only have the intended effect, and as few side-effects as possible.

    It's also a principle of good tax legislation that you don't accidentally take money from people who signed up to deal A and now find that deal B leaves them worse off, without at least giving them some decent amount of notice.

    So while I'm all in favour of progressive taxation, I'm not sure what the problem is in this specific case. This is not about tax avoidance, in the sense that nobody is exploiting a loophole. The conditions that are being pointed out were introduced explicitly as part of the legislation. It's no more tax avoidance than, say, putting your savings in a cash ISA rather than a deposit account.

    So yes, the tax advice company is looking to make some money off this, and yes, their language is hilariously unctuous, and yes, we all wish there wasn't a Tory government (well, apart from the 57% of people who voted Tory or LibDem or UKIP in 2015), and yes, it would be great if Vodafone and Starbucks paid some UK tax. But I'm not convinced that the idea that it doesn't matter that people get unintentionally hit by tax changes because they're somewhat arbitrarily deemed to be sufficiently well-off (my threshold for this, incidentally, has been "anyone with twice as much money as me" ever since I was 16 years old) is a good basis for making policy.

    1. So I don't understand why did anyone bother to change the threshold from 1.5m to 1.25m? I can only assume gov wanted to look as if they were asking the rich to contribute to need for belt-tightening, while actually allowing them not to do so.
      And so far as I can see, this gov is very happy for people who can ill afford it to be hit without warning by changes such as bedroom tax or changes in disability benefit.
      In terms of definitions of 'sufficiently well off', I think the whole problem with our society is that this is defined in relative rather than absolute terms. To me, sufficiently well off is being able to live a comfortable life, reasonably cushioned against unexpected nasties, without having to worry about how you are going to afford it.
      I accept that lots of people think I am weird for taking this view.
      My thoughts are further developed in this old blogpost