Is personal tax optional ?

mwpt

chucknorris wrote: »

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.

Interesting. How do you plan for this company to earn the income required to buy the shares initially?

chucknorris

mwpt wrote: »

Interesting. How do you plan for this company to earn the income required to buy the shares initially?

I (we) will lend the money to the company (at 0% interest, otherwise I (we) would have to pay tax on the interest earned).

pelirocco

michaels wrote: »

Great complete answer, I have heard of various vct schemes but that is too close to evasion for my liking.

I have to say I think earnings and tax should be published, the secrecy leads to so much scope for cheating, discrimination etc.

I am considering cutting my hours for a short period, I would lose WTC (although you get 1 month transitional relief) but therefore qualify for free school meals - I wouldn't take this up but I think the kids would then qualify for 6 years of pupil premia and thus having made a 5 digit contribution to the school coffers I wouldn't have to feel guilty about avoiding all the dire pta fund raising events....

You don't want to pay tax , but you have been claiming WTC , so guess you are ok with others paying tax

mwpt

pelirocco wrote: »

You don't want to pay tax , but you have been claiming WTC , so guess you are ok with others paying tax

I was curious about that too but since I'm a newbie here I don't know michaels history and what the actual situation is.

michaels

I pay less net tax overall if I make extra pension contributions in two years rather than spreading them over 10. Over the 10 years I obviously still make large net tax contributions. The difference is probably 10k less on 200k total paid and probably some of this gain is only actually deferring tax that I will when pay when I get my pension.

Everyone has the option to divert salary to pension and deffer the taxation until they receive the pension subject to the annual and lifetime limits (neither of which apply to me). I would suggest that everyone should look to see whether it is more tax efficient to make regular equal contributions each year or to make lumpy contributions, more in some years, less in others. Of course this requires the discipline to manage ones income and expenditure to allow income variability not to result in expenditure variability but with the ready availability of savings products and credit this is not exactly difficult.

wotsthat

pelirocco wrote: »

You don't want to pay tax , but you have been claiming WTC , so guess you are ok with others paying tax

I'd like my tax bill (my biggest expenditure) to be as small as possible. Your tax bill I'm less fussed about.

Pretty sure that's most people's position on tax.

How much tax would you pay if guided only by your moral compass?

Generali

N1AK wrote: »

I'm not sure VAT... is generally a regressive tax that impacts the poorest most.

Not so much in the UK although it is what a lot of people will tell you.

So many things are VAT-free or low VAT that it isn't particularly regressive.

I also wonder at the logic/sense of looking at a single tax alone. If one tax is regressive, so what? I bet taxes on cigarettes are the most regressive of all yet poverty bores don't bang on about those being cut. Surely what matters most is that the system as a whole is efficient and progressive. The UK tax system certainly meets that aim. The rich pay almost all the tax and the poor practically none if you account for benefits.

chewmylegoff

chucknorris wrote: »

I've just realised something quite important about my Isle of Man plan (IOM), which I mistakenly (but I only thought of this yesterday, so it is still being perfected) thought could not be implemented until we relocated there. But if we don't particularly need the dividend income (which we don't), we don't have to be out there to save tax. We could start the Isle of Man company now, and just leave the dividends with the limited company in the IOM, and wait to receive the dividends when we moved out there, after retirement, that way we could reduce our tax bill straight away.

Won't you incur a whacking great CGT bill by selling everything held in the UK and then loaning the money to an IOM company so that it can purchase those investments again (or any other method of transferring your assets out there)?

chucknorris

chewmylegoff wrote: »

Won't you incur a whacking great CGT bill by selling everything held in the UK and then loaning the money to an IOM company so that it can purchase those investments again (or any other method of transferring your assets out there)?

Yes, as far as I can see there is no way to avoid paying CGT on our properties (that certainly is not optional), but I/we intend to sell anyway. So the CGT can't be avoided, what I am looking at is the best way forward after the CGT payment. Going forward I can bed and breakfast my shares to mitigate CGT when I sell to transfer (unlike the property equity).

Although I have mitigated some CGT recently by switching my shares and locking in a notional loss in that I can carry forward and off-set against future CGT.

I deleted the post that you quoted, because I discovered (I have only just started looking at this) that there was IOM tax legislation introduced in 2006 'Distributable profits charge' which sought to tax people using a limited company to avoid paying tax, by not distrubting company profits. This was later replaced by 'Attribution regime for individuals' which was something along the same lines, this itself looks as if it has been replaced, so it is looking a lot more complicated than I first thought. It may be that we have to wait until (if) we actually relocate there.

Even if the whole idea becomes unworkable, the IOM does have favourable tax rates with only a 10% lower and 20% upper tax band, no stamp duty, no CGT and a 30% tax free lump sum on pensions, that would save us about £35k per annum. But all this is jumping the gun, we might not like the IOM enough to want to live there.

princeofpounds

I also wonder at the logic/sense of looking at a single tax alone. If one tax is regressive, so what? I bet taxes on cigarettes are the most regressive of all yet poverty bores don't bang on about those being cut.

Indeed - there seems to be this massive misperception that the purpose of every single tax should be to seek 'progressive' redistribution of wealth.


I think it's a valid goal of a tax system, but not a rule for individual taxes.


Mind you, hardcore socialists can never take enough of other people's money.