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Some of Britain’s most wealthy avoid income tax through share loss relief schemes.

By December 12, 2014June 13th, 2019No Comments

Share Loss Relief Schemes

The intention of these schemes is to create capital losses that will then reduce the amount of tax that is payable on earnings from either employment or income.

Investors purchase shares issued by a company. The investor then pays only a small portion of the nominal cost of the shares themselves, with the balance being met by loans.
Shortly after the company has issued the shares, its activities are declared to have failed so the shares become worthless or are sold for very little. The individuals then make claims on the capital losses against their taxable income.

HMRC believe that these schemes do not work and will open enquiries if they believe that a scheme has been used.

A study of Britain’s high-net-worth individuals’ tax returns has left George Osborne ‘shocked’ that multi-millionaires are using tax avoidance loopholes to pay ‘virtually no income tax’…

A study commissioned by the Chancellor of the Exchequer, George Osborne, has revealed that many of the UK’s high-net-worth individuals exploit tax avoidance schemes.

The confidential study ran by HM Revenue and Customs (HMRC), analysed multi-millionaire’s income tax returns and uncovered that ‘aggressive’ tax avoidance schemes were used by Britain’s wealthiest to ensure an income tax rate of only 10 per cent was paid; half of the average tax payers rate of 20 per cent. Some of the tax returns analysed by HMRC discovered that a number of Britain’s most wealthy avoided paying any income tax at all.

“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax.

“And I don’t think that’s right.

“I’m talking about people right at the top. I’m talking about people with incomes of many millions of pounds a year. The general principle is that people should pay income tax and that includes people with the highest incomes.

“I’m not allowed to be shown the names of the individuals but I’ve sat with the most senior people at the Inland Revenue, the people who run some of the high net worth units there. They have given me examples, anonymous examples, and so we are taking action,” Osborne told The Daily Telegraph.

HMRC’s report identified that three main tax avoidance loopholes were used by the biggest tax avoiders in Britain; three tax avoidance schemes were used legally to avoid a total of £145m per year.

Share Loss Relief Schemes Explained.

The following tax avoidance schemes allowed high-net-worth individuals to avoid income tax through:

    • Tax relief on donations given to charity;
    • Offsetting the cost of borrowing or business mortgages against income tax bills, or
    • Writing off business losses of one company against income tax bills.

Findings from HMRC’s confidential study led George Osborne to demand a ‘tycoon tax’ that would see a minimum tax rate for high-net-worth individuals, set at around a third of their annual income. As of next year, the amount of tax relief that can be claimed will also be reduced to £50,000 or 25 per cent of income – whichever is highest; a proposal which has been received with much angst. Many charities have argued that limiting the tax relief will restrict philanthropic giving and stop large, generous donations being given. The Treasury say that the tax relief system is vulnerable to abuse as many people have set up their own foreign charities to which they donate money. In his 2012 Budget statement, Osborne said, on income tax reliefs:

“Let’s be clear – most rich people pay a lot of tax. “It is also right that we have tax reliefs that promote investment, support charitable giving and reflect genuine business losses. “But it can’t be right that some people make unlimited use of those reliefs year after year. “Everyone in this country and particularly those with the highest incomes should contribute a fair share to the Exchequer. “….we’ve capped benefits.

“Now it’s right to cap tax reliefs too.”

George Osborne has reassured charities that he wishes to encourage charitable and philanthropic giving.

KinsellaTax staff consists of ex-HM Inspector of Taxes and ex-HM Custom and Excise officer, fully trained in all types of HMRC tax investigations.

To discuss a tax avoidance enquiry in confidence call 0800 471 4546 or click here to fill in a tax enquiry form.