George Osborne talked about clamping down on ‘tax avoidance’ in his autumn statement last week. He might sound as if he means it but he can’t really. How can you ‘clamp down’ on something that is legal?
If you invest in an ISA it is ‘tax avoidance’ since the interest you could have received in a standard deposit account would have been liable to tax. Likewise any money you invest in a pension, within limits, is eligible for tax relief. Does that become tax avoidance as well, since you might have had to pay tax on the interest that money received if you had left it in your bank account rather than investing it in a pension?
Tax avoidance is legal, tax evasion is illegal. Everyone has the right to structure their tax affairs to pay as little tax as possible, that’s avoidance. What we don’t have the right to do is earn lots of money that HMRC doesn’t know about. That’s evasion, and is punishable by prison as many have found to their cost!
But it gets a bit murky if you try to do something that is legal only to be told by the government that it’s immoral! You say potato and I’ll say tomato.
If the Government doesn’t like schemes that investors are using to avoid tax then it needs to grow a pair and outlaw these schemes. Then it becomes evasion.
Legislate, don’t leave it up to taxpayers to decide what they should and shouldn’t be getting away with.