Avoiding tax evasion

As long ago as August 2011 I wrote a post about tax avoidance and tax evasion.

This subject became a hot topic again last week with the BBC Panorama programme on the subject of HSBC Bank’s involvement with offshore account holders.

Back in 2001, I wrote

“Avoidance is perfectly legal. It is up to each of us to arrange our affairs so that we pay the least amount of tax.

“Evasion on the other hand is illegal. Full stop. Don’t do it!!”

Articles in the press this week have made reference to a “contentious” form of tax avoidance called a Deed of Variation.

Essentially a Deed of Variation changes a will posthumously. Instead of benefits being paid in accordance with the will, the beneficiary waives his right and the benefits are instead paid to someone else (commonly the deed is made by a parent and children or grandchildren become the beneficiaries).

This set me thinking as to what steps that we might take to avoid or reduce tax are actually contentious?

Is making an outright lifetime gift and surviving for seven years in order to reduce Inheritance Tax contentious?

What about expenditure out of income or transferring ownership of a parents house to children and then paying them a commercial rent so that the parent can continue to live there, whilst saving Inheritance Tax?

Are ISA contributions and ISA investment funds which pay little or no income or capital gains tax, tax avoidance? What about pension contributions?

Or (as I said on Twitter the other day) the fact at we all use our personal income tax allowance?

@paullewismoney@bbcradio4 is using your personal income tax allowance “tax avoidance?”

— Nick Bamford (@nickbamford) February 12, 2015

How about transferring assets between husband and wife to reduce or avoid CGT when those assets are sold?

Where do we draw the line?

The way I look at it is that if the HMRC rules allow it then an action is a legitimate tax avoidance step and frankly if we don’t as a society think people should benefit from such steps then it is up to our elected representatives to make changes.

Evasion is illegal and there is no justification for it. But it seems that a lot of commentators want to imply that a perfectly acceptable tax avoidance measure is somehow unacceptable.

They are I am afraid quite wrong.

Perhaps it is a case of I avoid, she conceals, he evades!!