Is personal tax optional ?

princeofpounds

It's a myth that rich people don't, in general, pay tax. HMRC data shows clearly that the vast majority of tax is paid by the highest earners. There are some anecdotal examples of rich people going to significant lengths to avoid tax but the arrangements often turn out to be illegal and as HMRC's data shows, income tax is not optional for higher earners - if it was then how come the top 1% of earners are paying approx 30% of all income tax receipts (and the top 0.1% about 11%).

Good paragraph, but I'd like to supplement it.


In my experience there is rich and there is RICH.


Even the big bonus bankers you hear about in the city are merely rich. Typically they pay full income tax (excluding deductions for things like EIS, which many people don't do). There is a bit more effort to avoid capital gains on investments, but actually the tax affairs of top city people are usually much much cleaner than is commonly perceived. They can't afford HMRC problems given their job depends on it.


People like consultant surgeons, high-end lawyers, sportspeople and entertainers get to be a bit sneakier, largely because they are self employed and so can arbitrage their status between individuals and companies as it suits. There is a region why Belgian dentists are famous for avoiding tax via Luxembourg, and not Belgian bankers.


But all of these people are small fry compared to the really rich (those in the tens of millions plus territory). There is a whole other set of rules up here, where it is nothing to fly by private jet between several mansions, so you can pick your residency as it suits. Your companies can strike special deals with governments for subsidy and tax relief (and you can route your affairs through your empire in the most advantageous way). I remember Michael Winner talking about how he was technically a multi-million pound debtor in the UK with no income, but of course he was borrowing against his own offshore cash assets held in the same bank (hence a low interest fee). You can even do a Barclay Brothers and try to effectively buy your own legal jurisdiction (just google Sark).


It does make me laugh when people talk about even the 50% tax band taxing the 'rich'. They are wealthy people, but they are just successful people in London, mostly middle class. Really RICH people don't have to avoid income tax and capital gains because they don't have either of them.

HappyMJ

michaels wrote: »

You are forgetting NI 'tax' that kicks in a fair bit lower.

I am paye and aim to pay no personal tax this year or next (subect to changes in the upcoming budget), unfortunately I can't earn less than minimum wage so still have to pay NI.

Who is silly enough to pay NI? My company pays me exactly £155 per week (£8,060 per year) which is equal to the primary threshold of National Insurance. That credits me with NI contributions for free. The employee rate is 12% over £155 and the employer rate is 13.8% over £156 so I just pay myself £155 per week to pay 0%.

The remainder of my £12,000 of earnings I declare in my signature is made up of rental income, dividends, interest and capital gains. None of which is "personally" taxed. I could get a lot more earnings free of tax if I tried harder.

ViolaLass

HappyMJ wrote: »

The remainder of my £12,000 of earnings I declare in my signature is made up of rental income, dividends, interest and capital gains. None of which is "personally" taxed. I could get a lot more earnings free of tax if I tried harder.

With regards to your signature, is a regular saver at 6% funded by a loan at 2.9% really worth it?

Presumably you have to take the loan in one go but you have to drip-feed the RS plus the interest from that is taxed. Doesn't seem worth it to me.

N1AK

kabayiri wrote: »

It just seems that in the supposed battle between a lumbering HMRC and agile financial specialists who can work every angle of an ever increasing tax code, there will only be one winner.

If tax is really a morality play as the Tory MP suggested, then are we not better to emphasise systems which promote this?

(I'm loathe to make this a Left v Right issue ... it isn't really).

Alternatively, should the tax focus shift to consumption taxes? We do have a lower VAT rate than some other Euro countries for example.

I would certainly like to see taxation simplified. That alone wouldn't solve the issue, but it could certainly help. Removing the concept of NI and combining it into general income tax, moving from a tax on profits to a tax on revenue for businesses.

The issue with tax being a moral issue is that it is unlikely to work. If I'm paying £10k a year in tax, why should I care if people earning far less paying virtually no tax think I'm not paying enough?

I'm not sure VAT is the solution. It is easier for the wealthy to dodge VAT by buying abroad, and it is generally a regressive tax that impacts the poorest most.

HappyMJ

ViolaLass wrote: »

With regards to your signature, is a regular saver at 6% funded by a loan at 2.9% really worth it?

Presumably you have to take the loan in one go but you have to drip-feed the RS plus the interest from that is taxed. Doesn't seem worth it to me.

The money is sitting in a current account earning no less than 3% whilst waiting to be drip fed to a regular saver. I've maxed out all of the current accounts earning 5%. It doesn't pay a huge amount but every penny counts. The interest is not taxed as my declared income is well below £10,600 and the interest on the loan is a tax deductible expense. The rest is capital gains.

kabayiri

The prevailing view here is that the show presents a "too good to be true" outlook then?

I'm surprised the tax expert they brought on to the show didn't come up with the valid objections and challenges discussed here.

I need to watch the program again (and then be none the wiser!).

HappyMJ

kabayiri wrote: »

The prevailing view here is that the show presents a "too good to be true" outlook then?

I'm surprised the tax expert they brought on to the show didn't come up with the valid objections and challenges discussed here.

I need to watch the program again (and then be none the wiser!).

It's too good to be true if you want a secure employed PAYE job.

If you're willing to take a risk being self employed then you can significantly minimize your taxes and still earn a fair amount.

N1AK

kabayiri wrote: »

The prevailing view here is that the show presents a "too good to be true" outlook then?

I'm surprised the tax expert they brought on to the show didn't come up with the valid objections and challenges discussed here.

I need to watch the program again (and then be none the wiser!).

You could make a 20 hour documentary full of dozens and dozend of interviews with 'experts' about how man made climate change is a fact, and another the same length about how it doesn't exist.

A programme about how it's hard for the reasonably wealthy to dodge tax and they generally don't is hardly going to get a lot of interest after all.

michaels

So I get married couples tax allowance but then I get my tax refunded by paying all my income into a pension - does that mean I get double tax relief on some of my income?

chucknorris

I think that it can be optional, I have an idea how I (we) can avoid tax, I have only just thought of it, so I haven't fully researched it yet, so it might hit a problem. But this is it:

Firstly I should explain that we plan to spend our winters in Spain and/or the Algarve anyway (so poor winter weather wouldn't be endured).

An isle of Man resident doesn't have to pay tax an dividend income received from an Isle of Man company. It looks like it is possible for a limited company to invest in shares. So anyone that relocates to the Isle of Man, sets up a limited company, and invests in shares with that limited company, then pays the dividend income received by the company to himself (by dividend income), is not liable to income tax on those dividends. I estimate that we would save about £70k per annum in tax, I believe the cost of living is higher on the Island, and also we would spend a bit more on travel (to visit friends) and also probably buy a property with an annex for friends to stay with us, so overall I think that we would probably save about £60k per annum. What really surprised me was how cheap houses are on the isle of Man, when you consider that it has generous tax advantages., this also would save us about £400k (which I have not factored into the annual savings). We would still pay tax on our pensions, but it would be less than the UK, at only rates of 10% and 20%.

We plan to relocate after retirement anyway, but we don't know where to yet, we planned to spend some time over the next few years exploring possible retirement destinations. So we are going to include the Isle of Man as a possible retirement destination (if the idea outlined above is feasible).

The Isle of Man would have to be desirable to us, because tax laws can change, so I don't think that we would be prepared to put up living somewhere that we didn't otherwise like, just to benefit from the tax advantages, it would have to be a bonus, rather than the whole reason for going there.

EDIT: I forgot to add that as corporation tax is 0% on the Isle of Man, no tax is lost there.