I’m a tax adviser to millionaires and billionaires. AMA.

[LetsTalkTax]

I advise rich people on their tax affairs. With all the posts today of people outraged by Vinted being taxable, I thought it might be a good time to do an AMA and dispel some of the myths posted about the tax that rich people don’t pay.

I'm not, but I employ a couple of ex HMRC advisors in my team

What jobs do they do and how did they become so rich?

When rich/famous people are prosecuted for tax evasion, why doesn't their accountant take the blame?

Well you don't pay 45% on ALL of your income

On most of it we do

Yes. I wouldn’t want to increase the scope of IHT. I’d abolish it, but replace it with a gift receipt tax.

Or perhaps with a hypothecated social care levy.

I have a few questions just about one thing, if that's OK.

A few years ago, maybe a decade or so, Jimmy Carr was publicly shamed for using a tax avoidance scheme involving the Channel Islands and loans (I think, the details went a bit over my head at the time). He didn't do anything illegal but a lot of politicians at the time called him immoral in very strong terms. He ended up moving his money out of the scheme and paid a lot more tax and made a public apology.

So here are my questions. This scheme was put in place by HMRC, what was the intended purpose of it if not for rich people to minimise their tax exposure? Who was the scheme for? I know a lot of tax policy is aimed at encouraging the rich to funnel their money in certain directions. I came away from the whole thing with the very strong impression that it was intended for ex public school and friends of the Conservative party and that Carr's actual sin in their eyes was being an oik who thought that public policy applied equally to him when he wasn't at all posh.

I also wondered at the time why his private tax information was available to parliament, is everyone's tax info public? And why we didn't get a list of names of who else was using the scheme? If Carr's tax advisor knew about it then other tax advisors to other rich people must also have known.

I also wondered why this ran and ran, it was in the news for months. Why not just close off the scheme and be done with it? I'm not sure that's something that you are in a position to speculate on particularly, but it had the air of a great, big, media, click-bait distraction about it. I suspect they were doing something sneaky behind the scenes or covering something up.

Great thread! I have 2 questions.

1. Do you think we will ever have a wealth tax? How would it work?
2. What do you think about the Scottish tax system?

Which of the legal methods that those who have the money use you to point them to would bring in most money to the exchequer if they were removed?

Do any of your clients end up paying, effectively, basic rate %?

sadly the Chinese government has a very unreasonable view on selling pandas and I will just have to 'liberate' one from the chengdu panda sanctuary. hopefully that won't affect my tax situation.

hmm... I think I will tell the benefits office that the panda identifies as a human child. should be fine.

I actually studied tax law years ago. It’s changed a lot. Anyway my Uncle asked my advice recently. He bought up a lot of properties in the 80s/90s for £20k- £40k each and rented them out. Transferred ownership to ltd company when rules changed. He’s keen to sell stuff off and retire but is concerned about being hit for higher rate CGT and then inheritance tax when he dies. Obviously going to tell him
to get proper advice but is there a couple of suggestions I can give him. Just to make myself look better 😉

What are your views on directors extracting large amounts of cash from close companies as "loans" that they never plan to repay ?

What are your views on people being able to avoid Income Tax, CGT and IHT with the use of artificial business investments such as AIM ISAs

What are your views on Non Doms such as Lord Rothermere ?

"As a fellow tax specialist (albeit specialising in a different client group), I echo this! The law is the law, and "loopholes" are not really a thing except in people's imaginations.

If you object to a tax relief that is in the law, then campaign for politicians to change it.

A normal sole trader earning a modest income is usually looking for exactly the same thing in their tax accountant as a large corporate or a HNWI would be. They want to be compliant (so they don't have to worry about fines or prison), but they don't want to pay more tax than they are obliged to."

I agree with this. Nobody wants to pay more tax than they are legally obliged to pay. It's a fundamental principle of the tax system and there are court cases to confirm this.

So I can’t remember the ins and outs of the Jimmy Carr scheme, but schemes aren’t generally designed by HMRC, they are the ‘loopholes’ people talk about that are largely closed now.

For example, HMRC rules say that a dividend is taxed at 39.35%. That’s less than salary. They did they on purpose so paying tax at that rate on dividends is the right thing.

You could come up with a loophole (you can’t, it’s now legislated against but bear with me) that says instead of taking a dividend your friend lends you money from his company and you lend him the same money back from yours. You never intend to repay it, but no dividend and so no tax and you’ve still got cash to spend. That’s a scheme. It’s not breaking any rules, but equally it’s an oversight by HMRC, not a design. HMRC have some rules at their disposal which allows them to look through avoidance schemes and tax them as they should’ve been taxed. Jimmy entered into a scheme like this (on totally different principles, but in this ilk).

The schemes eventually get contested in court and closed down. I don’t know how Jimmy’s became public knowledge. Maybe it was done via corporates (that’s how Nadahim Zahawi was recently found out), or if he took the case to court which makes it public record. Maybe a source leaked to the press. The scheme will have been generally known in the industry.

Nowadays schemes like this get allocated a number from HMRC that every scheme user puts on their tax return, and so HMRC has the names of everyone who used the scheme. A lot of the names won’t make a headline, so nobody cares but a celebrity name is the click bait. He will probably have been told it was a defensible scheme by his accountant (and it might have been) but after that case and a few others everyone became a lot more conscious of their tax reputation. Coupled with HMRC cracking down on schemes, this doesn’t happen as much in my world any more, and I don’t do it at all.

Tax headlines are always historic based on how our tax system works. So by the time it hits the press it’s often already closed but previous years’ use of the scheme has to be unwound/taxed appropriately, which gives the illusion of ongoing scandal.

How closely do you work with HMRC?

They’ll be paying 32.5% of the loan value in tax anyway, so it’s pretty pants tax avoidance.

If they artificial business investments, it’s probably illegal anyway. If it’s legitimate EIS or AIM investments, then there’s associated risk and so seems fair there is relief - but I do think the AIM portfolio IHT relief is a bit of an oddity that should be done away with.

On the whole, I support the non-dom regime. The inheriting domicile from your father is a bit antiquated though (and is what Lord Rothermere relies on) and so that should probably be reformed to your domicile at 16 being deemed your domicile of origin. But in the case of people like Akshata Murty it should apply provided she hasn’t acquired a domicile here. But domicile is such a grey area it’s difficult to assess without knowing all the facts.

I speak to them regularly in different guises (maybe every few weeks?). We don’t really work “with” them, we are just representing the relevant parts of our clients position with them.

If he’s selling them all, then liquidate the company once he’s done (20% CGT, not expected to increase in the short term). Then gift excess cash and spend as much as he can in lifetime. Maybe move £325k into trust every 7 years, but that’d need proper advice.

(Apologies in advance if what I'm about to say comes off as incredibly stupid.
I'm very much not clued up on this sort of thing, anything money/numbers/taxes stresses me out to no end as I've just never been able to understand, Never got on with numbers particularly well, convinced if there's a number's version of Dyslexia I have it lol!.)

What are your views on the Vinted/Depop/Ebay news? Is it fair? Should or could there be any rules to make it less of a "sting" to the little guy? I get they're trying to go after the sellers who legitimately are dodging tax, but surely there's a way to do so without hurting genuine people not trying to swindle the system?

When it comes to personal items such as clothing you no longer wear/fit into, or baby/toddler items that you no longer have a use for - That you've paid for with taxed money already, then the item itself will have had a tax applied to it on top of that via VAT right?
I just don't understand the part where you're essentially paying tax two or three times for the same thing?
Your wages are taxed, the item you buy is taxed, and then if you resell the items you've already got and it goes over that £1000, then you owe tax again?

Do these rules apply to Car Boot sales?
Where I used to live there'd always be a regular boot sale, like I'm talking every month I'm pretty sure!
You'd always see the same people with absolute mountains of stuff - Old DVD's videos, old Jewelery, clothes, toys, just things they no longer had a use for - You could tell it wasn't stuff they'd bought cheap just to resell, it was their actual things that they'd just collected over time.
But those sales add up, and I'd imagine they were likely earning over £1000 in a year, it was always very busy and I can't imagine they'd keep doing it for only about £80 a boot sale - So then where does the line end?

I used to do digital art commissions under self employment, and I found the whole thing insanely stressful and it felt at least very unfair to the point where I had to stop entirely.
For the first 3 or so years I was under the limit, then one year I wasn't, and I ended up with a £300 odd tax bill that I couldn't pay as my rent and food expenses left me often times in my overdraft and crying because I couldn't afford to buy any food. I was only over the threshold by a very small amount, not even a whole £100 over iirc.
The whole system just felt exceedingly weighted against me, and earning as little as I was, I obviously couldn't afford to pay someone to help me with it- £1000 a year to live on isn't exactly living the high life.

As I said at the beginning, apologies if this comes off as incredibly stupid/naive, but it very much feels at least like those at the very bottom trying to scrape by and make ends meet just seem to get repeatedly shafted.
And that's not to say that the rules have been implemented for no good reason, obviously they have very good reason- I've seen myself private sellers on ebay just selling stuff for profit because they got stuff wholesale, and it IS a business at that point - but I don't see the logic in penalising everyone for a small amount of bad eggs if that makes any sense?

Increasing CGT rates, taxing gains on death, increasing corporate tax rates on investment companies would bring in more revenue.

Probably not basic rate, but I think close to 30% effective rate is not uncommon.

I think the recent past might tell you a hypothecated social care levy might not land as well as you’d like 😂

Mostly entrepreneurs or inherited wealth. Some hedge fund / investment parents.

If the accountants were complicit, they should be prosecuted. Similarly with tax evasion schemes, promoters can be prosecuted.

Launching a hypothecated care levy in a general election campaign is a terrible idea.

Getting elected and then just doing it is a better one.

Doing it by making dead people pay for it, and selling it by replacing IHT, is the best one.

How would you change the laws so that the likes of Amazon, Ebay, Paypal and their ilk pay a fair amount of tax to OUR Government given the actual revenues they take from UK customers.
It's obscene they get away with comparatively minuscule UK tax contributions when soooo much revenue is made from customers in this country.

Whereas the percetion is that smaller businesses and those with shopfronts carry an unfair tax burden.