I have a tradition that I watch every budget speech live. It’s not particularly necessary – I get sent dozens of summaries seemingly within minutes of the Chancellor sitting down. But you can sometimes pick up nuances live that you wouldn’t otherwise get.
This year was no exception. George Osborne used a phrase which had a different tone to anything I can remember hearing before. He was referring to tax avoidance schemes, and threatened to use retrospective legislation in the future. He labelled such schemes as being “morally repugnant”.
What was he referring to? Well, there are entire firms made up of extremely clever people who scrutinise every word of tax legislation to try and find loopholes. They create complicated schemes, designed to skirt just within the edges of the law in order to save tax.
Two typical areas are pension busting and inheritance tax planning.
When such schemes are marketed, the Government goes through the Courts to try and close them down. This creates a ‘buy now’ environment.
The threat of retrospective taxation, however, means that the Government could apply a tax anyone who signed up to a schemes before having closed it down. So even if you had set up a scheme within the Law, the Government could deem it to be outside of the Law at a later date. This could threaten to stop all such activity.
We have seen a few examples of this recently, notably with a scheme offering to transfer pension schemes into an offshore company, then wind up the company and allow you access to your pension fund. This is sometimes known as pension busting.
It is questionable if this scheme works at all (I won’t even go into the charges of 15% and higher). However, surely the threat by the Chancellor that HMRC could decree that all such schemes that have ever been set up were all illegal, and therefore apply huge tax penalties, would put off anybody from entering into such an arrangement.
So far in this blog I have avoided the phrase ‘if it looks too good to be true, it probably is’, however if I did use it, I do think it that now would be appropriate.