How the Rich Avoid Tax – Channel 4 Dispatches

The rich always seem to play by a different set of rules. And this is particularly true when it comes to tax. The rich seem to have a lower marginal tax rate than the majority. This is because they have the best advisors and tax planners on their side and thus can pay a rate of tax according to their ‘moral barometer.’

So how do the rich avoid tax?

Trusts – There are a number of schemes that revolve around offshore trusts. One of the schemes is to set up an offshore trust, in particular the trust is set up in Belize. An offshore company is also set up to manage that trust and the money in it. There are inter dealings between the offshore trust, offshore company and a UK company which is controlled by the person wishing to reduce their tax bills. BY using this method, you can reduce your tax bill. With a scheme like this in place, you can choose how much tax you want to pay on your salary. If you want to pay 0% in tax, you put all your money in the trust. In essence, it is a type of remuneration trust.

Movie industry schemes – The movie industry has many tax incentives. There are numerous schemes in place to exploit this. It is said that some movies are made specifically for tax planning purposes

EIS – Enterprise Investment Scheme relief is a tax break offered to investors when they invest in small companies. The reliefs are lucrative as you will see below.

EIS works as follows:
Enterprise Investment Scheme (EIS) – is designed to encourage investment in smaller, higher-risk companies by providing investors generous income tax reliefs on new shares of those companies.

Reliefs available under EIS are :

  1. Income Tax Relief – Relief of up to 30% can be claimed on investments. So whether you are a basic, additional or higher rate taxpayer, the relief is still 30% provided you have paid enough tax to offset this amount. There is no minimum limit to invest but the maximum is £1,000,000 per person after which no relief is given.
  2. Capital Gains Tax exemption (CGT) – Any gains from the sale of the shares at a profit are free of CGT provided the shares are held for at least three years and the income tax relief was claimed on them
  3. Loss Relief – If you sell the shares at a loss, you can elect that the amount of the loss, less Income Tax relief given, can be set against income of the year in which they were disposed or, on income of the previous year instead of being set of against any capital gains. In short, losses made on investments can be sett against your income tax paid.

Advisors are using EIS and the film industry scheme in conjunction with one another in order to get the most relief.

One of the reasons there are so many tax avoidance schemes in the UK is because of the complexity and length of the UK ax code. As a result of the current tedious tax code, there are numerous ‘holes’ in the tax code and thus could be exploited by well paid accountants and tax advisors.