UKH

Sadly unsurprising

https://www.theguardian.com/business/2019/apr/03/inheritance-tax-loopholes-...

Reading the article, the super rich are better at planning for their families future whilst operating entirely within the UK tax laws? 

What is odd is that the merely rich aren't doing this too.

Even stranger, so should we all be doing it. Avoiding putting years of work into one massive annuity that dies with you. Sharing a bit grannies cash nest egg out annually so it isn't squandered by over priced low standard care homes, having decent insurance to cover life's inevitable eventualities so you don't spend savings instead.

I agree 10% on a massive estate is low and the laws should be modified continually as it is cat and mouse. BUT average Joe needs to learn more too, from school age. Many people have more idea about voting systems on bgt, dancing whatever etc or how much celebrity x is paid, than they do their own personal finances. It is of course always somebody else's fault. 

This advice should be printed out and posted on the walls of Britain's growing number of Food Banks.

Inherited wealth is unearned by the recipients and locks in unfairness. It should be aggressively taxed.

Or on every shopping centre. The uks problems are because everyone is paying too little tax at the time that they earn it. Look at UK tax rates compared to any country in Europe which has better funded services etc..

Many are family businesses, but on large scales. It's not simply a matter of dissolving them on death of the current owner. And they are paying tax. The uks richest are shoring up the treasury. 

A friend of mine inherited (as one of four brothers) a £15m estate (mainly property) and paid not a penny in inheritance tax. Something very wrong.

Exactly my point - except I'd include unearned income.

Inheritance is basically a gift, should gifts be taxed?

It is possible that they have deferred the tax. It is possible that your friend didn't have £1.35m in cash in the bank at the time, so it can be deferred until assets are sold and/or shared over the next 10 years. Which might be the plan from rental income and agreed with HMRC. 

It's been earned and taxed, then according to the article taxed again at an average of 10% on death, an average 25 and 40% for some if their financial planning skills are lacking within their family estate (ignoring the 375k allowance). 

It has NOT been earned by the recipient. It is unearned income. Period.

I presume if some unknown relative appears out of nowhere and leaves you a £1m house, you'll maintain the moral high ground on this topic? Happily paying the 40% over the £375k allowance? You won't seek accounting advice about how you could legally minimise the £250k you'd now owe HMRC?

But how many times is moral to tax wealth or income? Assuming we are talking about a familiy business it will be taxed at source, capital gains during trading, corp tax etc etc. Any pensions will be taxed too, although I concede you do get pension tax relief when putting in. I should add here that earners over 150k have a major tax benefit removed in this respect from April this year. 

What if the family business has been built by the family over the years and all members have contributed in tax. Sometimes when selling a business its the only time wealth can be gained from a business and not during it's life.

The government should encourage entrepreneurs not stifle.

Id have to think harder on the subject of inherited wealth from landowners/aristocracy who have not worked to gain wealth.

Whether I'd be happy or not isn't really the point is it? 

All sensible and valid points I'd agree with, and which the tax laws should accommodate.

For us it is primarily forest. Why would I invest and plant a product whose return is 80+ years away if the taxman would take it all when I die. Most of the work I do now my own kids won't even see the benefit of. 

I could of course just waste it all on cars that depreciate in value and die with nothing. Encouraging inheritance at all levels might actually stop people being wasteful. It won't help a materialistic capitalist economy built to rely on never ending growth though. 

So basically you'd do your level best to minimise what you begrudgingly pay.

The whole earned, unearned thing disappears if you look at money how it should be looked at, on a multi generation timespan. 

Money or more usually asserts don't often die of old age but unfortunately people do. So it's only natural they are passed down family lines. With that the receiving generation is given the responsibility to build on what the last generation started, and that is the route to equality.

It may seem like someone starting from nothing has a disadvantage compared to someone who's parents have wealth and connections. But really they are just at a different part of the cycle. So although I'd agree it's hard to go from the bottom to the top in one lifetime what I would say is it's always possible to improve on what you started with.

All those rich families were poor once and they'll be poor again one day. It only takes one generation to loose a fortune but often many to build one. 

Inheritance is the means by which one generation passes the batton to the next to help poor families become wealthy ones, to tax that is to hinder prosperity. 

No.

I don't begrudgingly pay tax. I am quite happy to pay tax. I'm happy to fund schools, the NHS, paramedics, the military, benefits for the needy - the young, old and, sick, the police, firefighters, nurses, schools, teachers, libraries, roads and other infrastructure... You?

FWIW I'd be more than happy with that. £750,000 as an unearned windfall is more money than most people will see through hard work in a couple of decades, and throwing a hissy fit because you aren't getting the extra £250,000 while living in a country where schools, hospitals and libraries are being cut to the bone and homeless people are dying in the street seems frankly obscene.

What value to you assign to your British citizenship?  (Compared to the global average, say).  Did you earn it?  

I’d rather have my unearned citizenship than an unearned gift of £1m.

I know good luck when I see it.

'Inheritance is the means by which one generation passes the batton to the next to help poor families become wealthy ones, to tax that is to hinder prosperity. '

In the immortal words of John McEnroe, You cannot be serious.

'Avoiding inheritance tax by setting up trusts is the definitive way that the rich get richer and pull up the drawbridge behind them. Personally I think trusts should be made illegal except where used to protect the interests of genuinely vulnerable; otherwise they just perpetuate inequality.

FFS huge swathes of wealth are still in the hands of families who came here with William the Bastard.

The devil is in the detail - how the taxation system is set up. For example, a higher tax load on larger established companies versus low tax or a suitable tax threshold for smaller companies gives a better chance of success for small companies and start-ups. The other issue is the complexity of the tax system, which can disadvantage small operations. 

I guess it fundamentally comes down to if you believe a man's wealth is his own or if he's simply given custodianship of it while he's alive from the state who then comes along afterwards to take it back. 

For me, what's mine is mine, the government is an admin service I pay for to maintain law and order and keep the UK safe, it does not own me and it has no right to my stuff. I pay tax in return for a service but beyond that, I'm a private citizen and what I own I will do with as I please. 

If we ever got to a stage where inheritance tax was 100% beyond a certain threshold I'd rather stack all the cash I had over that threshold and burn it along with my body on my funeral pyre than hand it over to the government. 
 

No you won't. You'll obey the law like (nearly) everyone else in most regards. 

There is no limit. You don't say " this bit of land has been taxed for the last x hundred years so let's stop". You don't say " this  10 year old coin has been used in a thousand taxable transactions so let's stop".

As long as the economy functions it gets taxed and hopefully that will continue long after we are gone.

I'm not having kids. Why should I look at money on a multi generational timespan? 

How is that a route to equality?

I don't believe that equality is the desirable endgame. I don't believe you think it is either, I think you're saying that as justification that you're interested in the broader picture - but it's a gesture (and one that doesn't make sense). 

That's comforting to those pentioners who've worked hard for low pay their entire lives and now have nothing. How will it pay for fuel? 

How so? I think they're more likely to remain rich. 

I think a more effective way to reduce poverty would be to have high taxes invested in education and infrastructure to improve economic opportunities for all. Allowing people with nothing to hand that on to their kids while others hand down millions doesn't strike me as an effective strategy for spreading prosperity.

As for my own view, I think there is a difficult tension: on the one side, inherited wealth perpetuates inequality and so taxing it is the most effective way to redistribute resources so that people on the lowest rung can have more opportunity. On the other, looking after ones family is the thing that might give people the most meaning in their lives and to militate against that seems unfair. So the inheritance tax rate (and shape of the curve, perhaps) should take both factors into account. 

You are referring to transactional tax and not wealth/income tax, which is different.

But the taxes you listed were transactional as I think in all of them a tax is imposed on the money received/spent rather than on an asset held with no sale or other payment.

I have to admit, I think people are quite irrational about this in relation to inheritance tax. We use all sorts of emotive language around it as if we're talking about saving Little Timmy from being sent to the workhouse if papa is lost at sea, but to be blunt, the chances are that your kids are going to be well into adulthood, probably middle age, by the time both of their parents have popped their clogs, and if by that point they aren't basically capable of looking after themselves with a mere 375k tax free plus 60% of anything above that then to be honest they've got bigger worries than inheritance tax.

But tax pays for so many of the things that we need to look after our families - health, education, and other necessary infrastructure. So it's essentially not unfair if well organised. We need more transparency and accountability so the perception of unfairness you're talking about is balanced by an understanding of what taxation does for us.

Yes. If I wasn't happy to pay tax for services I moved to the wrong country! If you note my comments I think tax as you earn it is too low for what people expect of it. 

But the people in the original article are not operating illegally? They are only using the existing rules in the tax system. 

Very true. But I can still empathise with those who find meaning in the process of accumulating wealth - it's kind of a bummer if when you die your entire life's efforts are essentially vaporised, rather than retaining their value in your family. While I'm all for a high spending on public services, the state is a faceless and inefficient mega-machine, and it does spend a lot of money on stuff that I think is a complete waste of time. Emotionally speaking, on ones deathbed, for some their life works would be obliterated by effectively collected high inheritance tax.

I think it's naive to believe that people with right wing politics underpinned by a morality of natural order, moral responsibility, individualism etc are going to be persuaded by better information. At the end of the day, rich right-wing people would do pretty well without paying taxes - they'd form gated communities with their own schools, hospitals and private security while the rest of the world burned outside. That would be the natural order.

Unfortunately far too much money given to the above is just plain wasted. Unlike private industry, which has a distinct financial incentive to work economically, all of the above simply ask for more when they've spent what they've been given, without any thought as to whether they've spent what they already had wisely. If money was used well, and waste was clamped down upon, then we'd currently be much better off. Instead we are looking at services getting worse and worse.

Then there wouldn't be this argument about whether X pays enough tax, or B gets enough benefits etc., and we'd all be that much happier.

Well, you might not have kids but you do have parents, and so you'll be on the receiving end of inheritance, if it's not large enough to qualify for tax I'm sure you could donate it to the government yourself. Also, you might end up being the dead end on your particular line of your family tree but you can pass your wealth to another branch of your family or again, if you'd really like I'm sure you can leave it all to the government if it'll make you feel any better. 

You're right about it giving meaning to people's lives though. For many people providing for their children and grandchildren is one of the primary driving forces in their lives. This isn't something you're likely to relate to if you've chosen not to have kids (although apologies if it isn't by choice). But regardless, for some, they look at what they have managed to achieve and look forward to handing it on to their kids with the view of them taking it and building upon it, even if they'll personally never live to see the outcome.

This is where it comes into helping equality. A poor and uneducated man is far less likely to achieve great things in his life than a wealthy and well-educated man. But that poor man can do a bit, he can help his child achieve a bit more than he could, who in turn could help his child to get to university and gain a better job and income who (now middle class) can help his child get a leg up and so on. 

Then a poor man looks at this son of a middle class family with all the connections and money to help with uni etc and thinks "oh the inequality, he's so advantaged". What he doesn't see is that he's the end result of a few generations of focused effort from people who started no different from him. And it's not like you hit middle class and it's all roses forever after. It only takes a few poor choices and a messy divorce or two and the next generation is back to square one again.  

 

......Wealth in general.

A washed up celeb goes into the jungle for stupid money because they've been given a huge bill off HMRC for overdue taxes. People who can't afford it spend money voting for them. Perfectly acceptable even though average Joe is in effect paying washed up celebs taxes for them. The celeb because like Lorraine Kelly claim they are a brand, aren't employed by the tv company directly, thus minimising any further tax liabilities. Public still don't bat an eyelid. 

Bloke works his whole life, starts a business, risks his family home, his family sacrifice and work also. He dies and passes the business to his offspring, who through due diligence of their father pay little tax. Business goes on etc.. he is evil tax dodging elite. 

Trickle down is discredited as a model

This sounds like a fantasy to justify not wanting to pay tax, to be honest. The fact remains that we rely to a huge extent on public services, those public services are funded by taxation, and dreaming of a world of perfect efficiency won't stop your local A&E getting closed due to budget cuts if the government can't afford to run it without increasing taxes.

And as ways of paying tax go, inheritance tax seems genuinely like one of the most painless options. If you're interested in looking after the next generation, think of whether you'd rather they got a bigger chunk of an unpredictable lump sum in middle age or consistently paid a bit less income tax when they were saving for a house or starting a family, for instance.

That wouldn't destroy the wealth. It just makes everyone else's money worth more.

I have saved maximum into each childs junior ISA since their births and will pay for their uni education (if they go and I can still afford it) all out of taxed income. If I can I will help them out with deposits on property as well. To me it makes sense as a good insurance against 100% (or very high) inheritance tax. Give them the best leg up I can so they can fly rather than risk all of my wealth going to the tax man*

* I am more than happy to pay tax and being on PAYE pay everything I owe . I also do not have any issue with the current inheritance tax rules but think its better to give children help when they start out than a lump sum when they are in middle age (hopefully I live that long )

I'm not at all bothered about whether or not I receive any inheritance - it would suit me fine if the state took the greater share of whatever there is, because I've got enough to get by from my own earnings. I'm not sure about me personally handing it over out of choice though, that has a bit of a different emotional impact!

I don't need to feel any better. I just have no interest in what happens following my death. I'll spend everything I've got and the state or whoever can pick at any scraps left over. I just don't give shit.

Ah, what a quaint and rosey view you have of capitalism! Does it not occur to you that capitalism isn't just about rewarding hard work? That some people's hard work goes unrewarded (care work being the best example), while others are rewarded handsomly for cheating and exploiting others? Which do you think our economic system rewards most, the entrepreneur who builds from scratch their hand-woven sustainable yoghurt business, or those who are prepared to abandon any shred of moral decency and spend their working life shifting money around the system so that matalan can build an extra sweatshop in bangladesh without paying any taxes?

I've worked in both the public sector as a civil servant (spending millions of taxpayers money on education and stuff) and now I work for a giant trans national corporation. I've found this notion that the private sector is comparatively far more efficient to be unadulterated horse shit.

At some point granny's care home has to be paid for... How much should be distributed annually to ensure that granny can get that new TV set / Car/ house repair done while she still lives at home? Before she runs out of cash... It is almost impossible to determine when a person becomes unwell and would need to move out of home. I have seen people who retire and are well for 20-30 years before having a short illness and dying, people who retire and have less than a year before they are dead, those who retire and are unwell almost immediately and need specialist care for many year and those who have long illnesses long after they expected to be dead. Its still a huge lottery on limited funds. 

Insurance will not cover regular maintenance of houses, replacement vehicles and nor is it financially beneficial for things like TVs etc. I guess that's why you see so many run down houses owned by old people, they are having to guess where to spend their money.

If someone appears out of nowhere and leaves me a £1m house, it'll be a bit late to do any tax planning on it, more than likely.

And to answer the question, yes, my parents have not tried to minimise the inheritance tax on their house should they die. I'm not sure the estate is worth a million though... but is over then threshold simply on the basis of mad house prices - bought at about 4 times salary, now worth over 8 times my salary which was worth more than my dad's when he retired in real terms. I would like to hope that tax is generally usefully used, but I suspect that mine is deliberately used on MPs flipping homes just to annoy me

I'd rather see it come from taxation. You work, pay tax, from what's left that doesn't go on living costs you accrue assets, which are then stripped to pay for care in old age. Doesn't sit right with me some how. 

Insurance; it can pay for lots of life's surprises without which can be crippling. Meaning regular income can go towards normal wear and tear replacements. I don't mean the scam insurance that are pedalled with white goods. 

Old people... when you hear all the stories of granny freezing, starving etc... where are her bloody family? Caring society, seems many only care about themselves. The days of 3 generation households don't look likely to reappear in the UK for sometime!  

My personal observation: 'All business floats on a sea of bullsh*t'.

Feel free to share.

We try to do both. But yes early help will likely prevent the need for intervention later in life.

I started a savings fund for my brothers new born as a christening present. He thought I was mad. Apparently they won't need it as he'll just give them what cash they need. Which I thought was odd as financial prudence and my brother just don't go together, they currently can't afford nursery fees and are using grand parents on both sides, despite having a new car, caravan and a house with 2 more bed rooms than they need. Oh and hotels, concerts, foreign holidays too.. I expect at some point I'll have to give my nephew a bit more help. 

Carillion, G4S, RBS, Northern Rock, East Coast Rail, probation (Sodexo, MTCnovo), BHS pensions, Southern Cross, NHS IT...

All work/ed efficiently, but not in the way you think.

I find it odd you are happy for people to pay higher tax on earned income, and lower tax on unearned income. I thought you would approve of effort, entrepreneurship and innovation being rewarded.

I pay my taxes every month on the dot - PAYE. Parents already dead so no inheritance tax coming my way. Live in a 2-up, 2-down terrace, so no likelihood of my relatives having to pay same unless the payment ceiling plummets.

The fact remains that we rely to a huge extent on public services, those public services are funded by taxation, and dreaming of a world of perfect efficiency won't stop your local A&E getting closed due to budget cuts if the government can't afford to run it without increasing taxes.

I'm simply stating that public services know that they do not need to be efficient, all they have to do is put out the begging bowl. It doesn't matter how many people they "employ", or how much they pay them, they'll keep demanding more and more until the entire system crashes - and then we'll have the continuing pain of having to pay their inflated pensions.

What are you basing your knowledge on?

And did the employees keep getting pay increases, or did they lose their jobs.

You need to focus on "who got rich", not the more generic "who was employed". Victims can be emoloyees hence the BHS pension example I gave.

The article implies the rich avoid tax altogether with Trusts. It would be more balanced to know how heavily these Trusts are taxed in other ways.  

It's not unearned income though. They've inherited a family asset. If that asset provides an income then it will be taxed appropriately. 

you mean like a family business, passed on through the generations. 

Well, it seems you're going to die alone and you've nothing invested in the future, a pretty selfish attitude if you ask me. I don't know if you have any nephews or nieces etc but you should put the above line in your will, I bet your remaining family will just love dear old uncle Stewart. 

Well first off the story I spun you before is not too far removed from my own families story so it's hardly fantastical. My father had opportunities my grandfather never had, I've had opportunities my father never had and my future kids will have advantages I've never had. We're not super rich by any stretch but it is satisfying to see progress and to know you'll be able to provide your offspring with a better chance in life than you got yourself.

As for capitalism, in general, it has nothing to do with working "hard". That is a lesson you need to learn early on. A £1000 is a £1000 whether you earnt it in your sleep or clawed it together through blood, sweat and tears. The man who digs holes in roads all his life undoubtedly works hard but he'll never be wealthy. The smart man who stays at home and builds a business sells products earns money and then uses it to build a steady investment portfolio probably will. 

And as for earning money, no one is forcing you to buy anything. If its sweatshop T-shirts or organic yoghurts, you develop it, get it made, get it marketed and sell a million of them at a profit then you're going to get wealthy, but only because you've found a million people who what you sell and are happy to hand over their money for it. The guy on the factory floor can't do that.

As i intially opined, 'unearned by the recipient'. 'Taxed appropriately' is subjective. 

Of course, be it Dyson, the Duke of Westminster's property portfolio, or any other business that only flourished by luck of being in the society in which it is seeded.

We can adjust those tax levels accordingly if thd family business is predicated on rent-seeking or extractive wealth practices.

Others have responded to your main point, and shown that there are plenty of examples of private sector failure. I'll just pick up on your point about services getting worse and worse: they may well be, but the Conservative Party's austerity policy is the main reason for this.

It would be naive - I quite agree. But that's not what I believe. I'm more concerned with the many people in the centre ground who are still open to persuasion. And transparency and accountability for public services are worthwhile aims in themselves anyway. 

I don't really know where you're coming from. By the time I die, most likely my nephews will be in their forties, and if not, well boo hoo, but they're perfectly well cared for. I don't understand why you think I've got a moral duty to make sacrifices during my life so that someone after I'm dead has a bit more money.

So you think that my nephews have some sort of moral entitlement to money that I've not spent on my own retirement/care whatever, and if they don't get an inheritance from me, they've every right to feel aggrieved? I certainly hope that at aged 40-whatever they don't think like that, the entitled little f*ckers!

I don't doubt that for a second, I'm just not convinced it's an accurate representation of how our society does, or even could work, in general. I don't assume that my background and story is remotely representative - why should yours be?

OK, but you could still opt to just get a job working out how Amazon can minimize their tax bill, and earn a heap. Some people are driven by a business mindset, others want to earn as much as they can without the risk and burden and don't care how, some people are driven to do work that's satisfying for other reasons but not well paid, and others have no option but to work in a job they hate for shit money. What's your point?

The super rich should be hammered for tax, absolutely hammered, 99% + on all tax Including inheritance tax. 

Your nephews or whoever, have no entitlement to your excess money no, it's your money and you can do with it as you please, including spending every last penny if you wish, I'm a strong believer in that. But we're are assuming here that at your death you are leaving an estate large enough to be subject to inheritance tax rules.

Anyone receiving a large sum of money all of sudden is going to find it hard to be too pissed off but if I were your nephew and I then discovered that you purposely left things as to be fully exposed to inheritance tax because "I couldn't give a shit, I'm dead" I would be pretty miffed yes. Particularly if paying said bill required me to, for example, sell the house you'd passed on which I'd always want to live in or some such thing. 

To me, I just can't understand your viewpoint that given the choice you'd be indifferent to handing your money to the government or close family members because it makes no odds to you, you're dead. By the same reasoning, you could say "I don't give a shit about global warming because I'll be dead before it really kicks off so it doesn't affect me". Surely the advancement of those close to you is more important than a drop in the ocean addition to public finances which will help some people an unnoticeable amount on average? 

I this is just something where we have fundamentally different viewpoints on and will just have to agree to disagree.   

Sounds good and to many it may even sound fair but it does not work.  There are several consequences. When excessively high tax rates have been applied in the past money (and consequently employment) moves abroad, overall tax revenues go down and entrepreneurial ambition is stifled.

Fair enough but there are ways(laws) to stop them taking their massive wealth out of the country which would increase tax levels. I'm sure many of these unbelievably wealthy people would be very happy for the opportunity to utilise their philanthropic side by helping their fellow men, women and children,so it would present them with a perfect opportunity to become better people and make life a little better and easier for everyone  don't you think?

If you have money there are three things you can do with it.

1)  Get rid.  Give it away or waste it.  Mostly it's lost.

2)  Nothing.  It will eventually be worthless.  It's all lost.

3)  Invest it. You get the best return you can which also raises the maximum tax.  If you start or finance a business, even better, higher returns, employment, also raising tax.

Money makes money.  People that have it are not your enemy for that reason.

No and that's the crux of the problem with socialist ideas.  For them to work everyone has to behave in a way that socialists think they should behave.  It's hard to object to the principles of socialism, they are very laudable, but it's difficult to see how you can get them to work and not encroach on personal freedom.

It would be impractical to just demolish a large estate purely for the sake of it. I was thinking more about the hypothetical case of higher rates and lower thresholds, which might affect me - and I'd be fine with it.

I just think it's fine for a good chunk of a dead person's money to be used for stuff that benefits everyone. In order to have the kind of society we want to live in, where there are good schools, hospitals, infrastructure to make the economy work, parks, sports funding, art galleries, blah blah blah blah civilisation, the money's got to come from somewhere. Dead people seems like a good bet to me, especially considering how *not* taxing them supports the mechanisms that increase inequality. I'd rather be poor after I'm dead than in retirement, for a start.

Actually, money is moving abroad - technically offshore - now. The Paradise Papers should have informed you of the scale of this problem. Ironically our current tax arrangements provably stifle entrepreneurial ambition - an independent coffee shop cannot hope to compete with Starbucks because the latter can effectively pay little or no tax (certainly historically).

You've stated "When excessively high tax rates have been applied in the past money (and consequently employment) moves abroad, overall tax revenues go down and entrepreneurial ambition is stifled".

Can you give an example of where/when this occured?

The high earning flight of the wealth creators seems to be a bit of an urban myth 😀

their money does seem to be leaving the country though :-/

Wow,  I've never since such a transparent display of self-interest. Yes, no one likes to hand over more money than they have to, but there's no deeper argument than that.

Rich people's kids have access to the best schools, they will have tutors and cleaners and cooks. They will receive private healthcare where there's an advantage to doing so, and will grow up wanting for nothing. 

Any student fees will be paid of course, and even if they are a bit stupid and lazy they will likely have the right accent and their parents' networks to find a job. If they're not capable of doing that, they can always work for one of their parents instead. 

They will be bought cars, houses, holidays and anything else they might want or need.  

Clearly this is not enough, and the government are overstepping their bounds by taxing the £millions left to these lucky people because they've haven't milked being born from the correct and proper womb enough.

Parents will rationalise that although Billy was never the brightest, or a particularly hard worker, he is still my son and I'll do what I want with my money. He makes a great cup of tea (not that I trust him to do much else) and needs to be provided for after I'm gone. 

Who am I kidding? All parents think their children are hard working and bright (in their own ways). They will inherit money because they've earned it (well sort of). 

We've already seen people say that they'd rather burn their money rather than give it to the state. Billy couldn't keep ahead if the plebs were afforded similar opportunities as those with rich mommies and daddies.

Now not many are arguing for 100% inheritance tax, the moderate position is simplify the system so the moderately well off can pay the same rate as those who can afford laywers to find the most efficient way to minimise tax. 

Doesn't seem that outrageous to me, rich people's kids will still have incredibly fortunate lives even with a high inheritance tax rate. 

Your No3 is what the revenue generated from super taxing the super rich could be used for ie. Investing in people, jobs, the environment and all the things Jon stated above. Which you agree on by promoting it, so we all agree on what needs done but differ on the method used to get there. 

And no you are not my enemy, we both wear hats! even though mine is slightly more hip although yours wins hands down for quirkiness. 

Maybe by reigning in the worst excesses for example where does personal freedom stop? The super-wealth of the world is concentrated in ever smaller amounts of people so will it be OK for not 60 people to own the same as 3.5 billion but one person since stopping him/her will be to " encroach on [their] personal freedom"?

I mean even 60 is totally insane.

So I don't buy into this ethos of personal freedom I mean where does it end? I want to own 10 countries, 20 countries a whole continent. 

Thank you. Governments do not do No3.  They just borrow.

I can't speak for Shani, but I for one would. It saddens me that we live in a society that sees avoiding paying your fair share towards running the country as prudent rather than obnoxious behaviour.

Most of my colleagues think I'm mad when I say I refuse to operate under a limited company to ensure I'm paying my fair share of tax. 

When I point out that I like paying for schools and hospitals, and that whatever the legals drawing up our contracts might have weaseled in there to avoid IR35 we are pretty much the definition of disguised employees some have the decency to look a bit sheepish, but most still look at me like I'm crazy.

Maybe I am, but I think tax avoidance is morally reprehensible.

When i see people wearing the poppy and i know they engage in aggressive tax avoidance i often wonder who they think looks after our broken troops? Who do they think looks after ex-service people when they become sick or unemployed or generally fall on hard times? If a service or ex service person is unable to provide private health & education for their family, who do they rely upon to do this?

When service people fight, do they do it to protect private education, private health and tax-efficient structures? Or are they fighting to protect the fabric of wider UK society?

Bottom line; I'm happy to support the fabric of UK society through tax and without nefarious or exceptional tax arrangements. Poppy wearing patriots should seek to do the same.

Logic would dictate that if everybody operated within the tax rules paying absolutely no more than they needed, ie claiming or using all available allowances, then if the treasury was short, it should collaborate with HMRC to increase which ever taxes to meet any shortfall. Etc.. If a person voluntary pays more tax than they should, they are in part only filling in the gaps that tax dodgers are leaving and loopholes or gaps are less likely to be tightened, as HMRC / treasury are getting their desired funds any way. 

Apologies for arriving so late to the discussion. The authors of the article, and what is far more excusable, the general public all lack a detailed appreciation of the finer points of tax law where it relates to trusts, the standard tax efficiency tool for inheritance management. It is easy to fall into a trap of assuming the worst of not just the wealthy but also a government that ought to tax them fairly. However, it pays to understand that those apparent loopholes are exceptionally tight. 

Anyone can salt away a lifetime's Inheritance Tax threshold (currently £325,000) into a trust with no IHT consequence. But the minute you pay a penny more into trust you have to pay 20% IHT (ie half the full rate) on the excess over the threshold. Yes, you pay your inheritance tax before you die. Then the excess is taxed again to IHT at a rate of 6% only 10 years later. And taxed again on every subsequent 10 year anniversary until the trust is closed or there is no excess. And lastly it is taxed a final time by a very complex calculation on exiting the trust, ie when it gets paid out to the beneficiaries.

I have rather simplified the explanation (for my own benefit as much as for everyone else. I'm not a tax accountant). There may also be errors for which I apologise. However, does that sound like the rich are fiddling from a compliant state? Or is the Guardian trying to get one over you with a disingenuous dismissal of the government's and HMRC's complex and detailed endeavours to extract its dues?

You might be able to guess that I've looked into the whole business of inheritance tax and I haven't really done anything about it, much to my advisers' dismay (no fees for them!). The important thing we've given our youngsters is a good education, strong values and great self-belief. They don't want the fruits of my endeavours and I've made precious few arrangements for them to receive it, meaning the majority will go to charity or the state.

Your logic is flawed as it ignores the revolving door between tax lobbying/the Big Four accounting companies and HMRC.

Tax policy is driven in part by vested interests.

The limits of personal freedom are a separate debate, I'm talking in the context of taking from one person that that he already owns to give to another. That is simply theft. I also object to the premise that anyone who has more has obtained it illicitly.  Bill Gates is a good example.  Yes he is worth billions but he has invested time, money and skill to get where he is.  As a consequence he has created direct employment for thousands and indirect employment for millions and he and his wife contribute a lot of their wealth and time to charities.  Now imagine if during his early days the government had taken 99% of his wealth from him he might well have thought that the rewards were not worth the effort and it would be a different story.

Luck played a huge role in Bill Gates' success. The fact that he was born in to a society that allowed his talent to flourish, at a time when his skills and ideas were a perfect fit for the technology gaps that had opened up, all in a system that allowed individuals to accrue huge wealth, exemplifies the role of luck.

(Will we leave aside Bill's ruthless crushing of rival technologies and anti competitive practices - all afforded by his 'earned and self-made' wealth and power?)

Steve Jobs never wrote a line of code. Phillip Green never sold a single garment. Edison never invented the lightbulb. But they all knew peole who could.

How do you think bill gates would have done in a country without tax payer funded education of his employees and customers? Illiterates don't write much code or buy MS Office.

How would he have done in a country run by warlords rather than in a country with a tax payer funded court system where contracts and copyright are enforceable? 

Funny how places without taxation don't produce many billionaires or vibrant economies.

There are plenty of small time inventors and coders out there but they aren't making much money because they are just one man with one set of skills. The reason company directors get paid so much is they have the ability to hire and organise a range of talent to work together and build something way beyond what a single craftman could ever do. In your world we'd have never moved beyond the cottage industry.

I think some people will succeed at something anywhere, they are often just motivated, curious, passionate folk.. who might have technical, creative, artistic skills and they'd find ways to pursue their vision, any vision, regardless of anything else. 

Yes it's more beneficial that they apply their skills in silicon valley rather than help a drug Lord launder their money or build a synthetic drug lab in the middle of the jungle. 

You'll have to explain to me what you think 'my world' is.

Where does "super rich" start?

Watford.

The reason company directors get paid so much is they got lucky. I speak from experience.

If we can't eliminate the throw of the die - and we can't - then we can at least reduce the effect of that on future generations.

Fascinating thought experiment that.

A lot of Bill Gates’ early success was based around highly questionable practices indeed. I think he may well have done rather well for himself in the environment you describe, although I doubt he’d end up a billionaire giving back so much to the developing world.

I agree.

My children have had thousands of pounds of unearned income from me and my wife (we just happen not to have died yet). Tax all children to stop them enjoying the benefits of unearned income via their parents - that should level the playing field. Why wait until they get old, unearned income is unearned income after all...

I

What an ironic example. It's well known that Bill Gates will give 99.9% of his billions away to charity and 'only' circa $10 million will be inherited by his children.

So yes, he's prepared to give over 99% of his wealth away when he dies. He still seems to think it was worth the effort. He's a good example to follow.

And your example is rather ridiculous. If you have billions and you give 99% away you still have more money than the 99.9% so it hasn't really impacted you one iota. 

(FWIW, I am not saying its a bad thing (I used to tell him where to spend his philanthropy) just that it really isn't that generous).

To whoever said the government is an admin system that takes money in and spends it to the run the country - nail on the head - they are nothing more than that. If you understand that you'll have a much better idea of what is reasonable for taxation.

And inheritance tax is one of jealousy, it contributes very little to the coffers. circa £5Bn of a total of £789Bn.

These taxes are already in place. There are limits on the size of financial gifts you can give your children and kids are subject to a tax allowance. 

Thanks.

The last Duke of Westminster avoided over £3bn in inheritance tax. 

£3k a year, plus a few extras. 

There are other rules on larger amounts but these must be gifted 7 years before you die to avoid any tax. Otherwise it's on a year by year sliding scale. 

If you read BnBs post you'll see if they had been using trusts etc.. they will have been pre paying inheritance tax before he died. Just because they paid nothing at the time of death, doesn't nothing was paid previously. Of course it makes a rubbish guardian headline. 

And they did and do use Trusts.  Our business is a tenant of the Duke's via one of the many trusts the family operates.

Well, that's where you're wrong.  Everybody with more money than me is evil and shouldn't have more than me.  I hate them.  I hate them so much that I'd like the government to take nearly all of their money off them and give it to, er..... schools and hospitals.  Well, when I say 'schools and hospitals', obviously some of it should go to schools and hospitals.  But mostly it should go to me, because I am morally superior to people with more money than me.  And I'm outraged, so your arguments don't count.

Thanks for your contribution to the thread.

You can actually give larger amounts than £3K pa out of income without them being considered for inheritance tax. I'm not sure of the exact criteria, so you'd need to look it up. Tax is usually more complicated than the headline stuff you see.

No problem.  When can I expect my cash?

I think Thrudge summed up the Hard Lefts (and yours) point of view regarding all money rather well.

Yes. As i said, provided you live 7 years, upto your normal inheritance tax threshold. 

I'm all for meritocracy, innovation, and, I'm quite happy that individuals earn a fortune. Not sure why you think that aligns with Thrudge's post.

No, I think you can give out of income without the 7 year rule applying subject to certain criteria (the "out of income" is the important bit and relevant to this thread). Like I said it's more complicated than the headline stuff you read on it. 

It has to be an amount that doesn't alter your standard of living. Ie. A large proportion of your wealth or wages in one go. How they measure that I don't know. Must be percentages or ratios. 

For what little it will do, I agree with your position: Higher tax on wealth, especially unearned or inherited wealth, but comparatively lower tax on earned income is more likely to drive the right societal behaviours regarding productivity and opportunity, as well as encouraging active investment and going some way to making the currently broken concept of the trickle down economy actually work. Currently we have people happy to sit on mountains of money that is basically doing nothing bar accumulating, whilst people working their arses off are on the breadline. People can harp on about jealousy all they want, but I've yet to hear a good argument for money sat there doing nothing.

Everyone with less money than me is a lazy, grasping thicko who actually likes being on benefits rather than working because it's just free money. I deserve everything I have because of my brilliance and hard work and luck doesn't even come into it. Those mewling morons would probably just gamble, drink it away and spend it on Nike trainers anyway, so it's better for everyone that I keep it all because I understand the value of things, especially when they're invested in a diverse portfolio, making me more money than I can actually spend. The system works perfectly as it is, and I in no way am saying this just because I'm the beneficiary. Richer = cleverer = more deserving, so your arguments don't count.

This is fun, shall we do more?

If we were all to sit down to play a game of Monopoly, and someone pulled out a bag stuffed full of extra Monopoly money, claiming their "Dad won a game of Monopoly yesterday and had passed it on", and the pulled out a special set of favourable Chance/Community Chest cards not available to other players, a couple of things would happen:

- Junior would highly likely win THIS game on Monopoly regardless of dice rolls.

- Negative events (eg landing on others' property), would have negligible impact.

- On winning, Junior would declare superior business acumen as the cause of the win (evidenced by several psychology experiments).

- Junior would become less charitable (also evidenced by several psychology experiments).

But, I'm sure some on UKC would argue that any complaints from players was jealousy!

I don't think we need to do any more, we've covered it quite nicely between us.  My post dealt with the childish resentment of the hard left and the silly idea that it's all just down to luck, and yours dealt with the inhumane contempt and dismissal of the hard right ('hard' in economic terms, not necessarily in other terms).

You're problem is assuming the game of monopoly is singular. It isn't. You need to think of wealth & income as something that is an intergenerational family benefit, not a singular individuals. 

Is "Junior" another name for Donald Trump ?

It's generous in absolute terms at almost $100 billion. It's also generous in relative terms at 99.9%. 

It's also not enough money to keep the family home which is worth $124 million so his children will need to sell up (an issue often raised when discussing inheritance). 

If you think everyone should give up everything but a fixed amount of assets then that's a pretty hard left position. In terms of a capitalist society I would say he's being pretty generous.

hahah you clearly have no idea about me. 

(and no, I don't wish to disabuse you further with more information)

Why do we need to? I know that's the argument, but as has been discussed up-thread, the dead and yet-to-be-born don't suffer. The living children of high-achieving parents already likely have the benefits of available money and a positive role model giving them a higher likelihood of being financially stable on their own terms, so why do they need a big sack of untaxed moolah accumulated by someone else dropping into their lap? I'd argue that the immediate societal benefit of money to invest is more important than an intergenerational family one.

I'm responding to your post. Not who I think you are as a person. As you astutely noticed, I don't know you. 

Speaking of the hard left, their behaviour is apparently nothing new - Nietzsche had it nailed:

"Because, for man to be redeemed from revenge—that is for me the bridge to the highest hope, and a rainbow after long storms.

Otherwise, however, would the tarantulas have it. "Let it be very justice for the world to become full of the storms of our vengeance"—thus do they talk to one another.

"Vengeance will we use, and insult, against all who are not like us"—thus do the tarantula-hearts pledge themselves.

"And 'Will to Equality'—that itself shall henceforth be the name of virtue; and against all that hath power will we raise an outcry!"

Ye preachers of equality, the tyrant-frenzy of impotence crieth thus in you for "equality": your most secret tyrant-longings disguise themselves thus in virtue-words!

Fretted conceit and suppressed envy—perhaps your fathers' conceit and envy: in you break they forth as flame and frenzy of vengeance."

Eh?

Short version: the hard left/SJWs are tyrants in waiting, motivated by resentment and hiding behind the mask of compassion.  Slightly off-topic I know, but only very slightly.

Thanks for the translate. Still don't agree with the equation of hard left and "SJW", as I'd say one is an economic position and the other a social/cultural one, but hey ho.

This is the common misconception. It isn't sitting doing nothing, its invested somewhere. 

Fair point, they're not synonymous, it's more that there's a large degree of overlap.  

You miss-read my post.

The motivation to be socialist does not arise from a need to feel morally superior because that is just ego in the same way as Monkey Puzzle's mirror reply to you showed;the i have more money so I am more intelligent kind of thinking.

To say socialists are jealous is wishful thinking by those who think they are "Morally superior" ?? ie. Can admit to their jealousy so are more honest than socialists who cannot. 

You see how silly both are? Did jealousy force a young Argentine doctor to live like a mountain man in the swamps and jungles to help poor people when he could have enjoyed a very well paid and comfortable life in country clubs etc? He and other socialists are socialists because we see terrible circumstances in which a great many people must live whilst others have so much that they don't even need. We see the wealth is created by the workers for these capitalists so why should they be struggling all their lives whist the tiny amount of capitalists get it easy? 

Personally I try to rise above material possessions and ego as that way leads to all sorts of terrible unnecessary psychological problems that we create for ourselves.

You know- unless you are a psychopath - how bad it feels when you see others suffering and struggling and you want to help make things better for them, socialism is as simple as that. Call it altruism or any fancy name you want but it boils down to caring and helping which is our true nature not ego.

It is being selfless not selfish. 

I wrote "nothing bar accumulating", i.e. it's not invested in schools, roads, hospitals, public transport, childcare or social care provision that help society at large.

Though obviously a by-product of being a socialist is that I am far and away vastly so much more "Morally superior", to you that it is so far beyond your comprehension that you cannot even begin to understand where I am coming from.

It's different levels of consciousness in it. 

🙂

Just kidding. That was my ego popped out for a second there but just to try and shatter yours in a fun/ironic way and show how pointless egos battling with each other is. It took me 50 years to learn that BTW. 

Seconded. It pains me when I have a large amount of capital sat in the bank earning 0.6% when we have 2% inflation. The sooner it's spent on something I can profit on the better. 

Some don't seem to understand what "invested" means.

When you invest you spend your money on something. It might be something fairly simple like property or starting your own business. Or it could be something more obscure like the markets. But either way, even if it's a few levels removed from actually making something and selling it, it's ultimately financing business somewhere, somehow and that is what makes the world go around. Even money sat in the bank is doing something as the banks use it and make a profit with it. 

If all these "rich" people and I use quotes because many of them aren't the investment banker types people imagine just stashed all their money under the bed in cash the economy would collapse.  

 

That's fortunate, because I'd somehow got the impression that wealth was pooling more and more with fewer and fewer individuals.

...and then we'd need something like, i dunno, QUANTITATIVE EASING perhaps? Just a guess mind!

But what if the QE were directed largely towards financial structures dominated by the wealthy? Well in that case we'd see various asset bubbles developing (ultimately in art), an increase in the concentration of wealth amongst the wealthy, and, greater (household) debt levels than ever before......thus creating a much bigger version of the same problem further down the road.

There's a strong argument that the current model of shareholder capitalism is detrimental to the economy because of the way it encourages short-termism and holds back useful investment.

Summary of this argument here:

https://neweconomics.org/2017/07/shareholder-capitalism

The "strong" argument being made by the totally unbiassed "New Economics Foundation"

Didn't read it did you?

"... a list of unusual suspects voicing concerns about the nature of modern corporate behaviour. Dominic Barton, the global managing director of McKinsey, has argued for yearsthat capitalism needs to take a longer view. Andy Haldane, Chief Economist of the Bank of England, recently suggested that businesses ​‘are eating themselves’. Even the Chief Executive of BlackRock, the world’s largest asset manager, has admitted that pressure to keep the share price high means corporate leaders are ​‘underinvesting in innovation, skilled workforces or essential capital expenditures’."

I did read it, yes. And I largely agree with its argument. But the focus is on publicly traded corporations and I'm not sure if this is where most Ultra high net worth families invest their money. Perhaps someone will be along to tell me different?

Most Ultra High Net Worth families are wealthy because they invest in their own businesses (although I accept a level of diversification) and they tend to have VERY patient capital, tend to be exceptionally community minded and ensure that their workforce is treated fairly.

I think that's a much better point, but my understanding is that they spread their risk across private and public investments, property and then collectable investments like art, cars etc.. 

I was really responding to the idea that investment by the rich was essential to the economy, and pointing out that these days there is a downside to some kinds of investment. Thinking about it, I don't think investing in art and property is particularly beneficial to the economy really.  

This very much depends what stage your UHNWI has reached. Their riches are probably derived from business ownership, ie privately invested and highly concentrated, but it’s not usual to hang on to the golden goose forever. At which point their wealth becomes diversified between public and private equity, also multiple properties or trinkets. Publicly quoted instruments will usually play a significant role however.

I think my real point is that headline articles in the OP don't really paint the whole picture. It is a lot more complex.

Rather pointless- the government could just reprint the notes they've lost nothing. However you would bring attention to the fact that paper/plastic notes are just a myth, invented for our convenience. We believe in them but in reality their only practical purpose would be to light fires or wipe arses , the plastic ones would even be useless at the latter.

I think you might need to re-visit your economics 101 class.

The point is not to reduce the overall wealth in the nation, it would be a principle matter of not letting them gain wealth directly from me. If it makes the concept easier I could liquidate all my asserts buy as many rare stamps as I can (thereby giving all my money to a stamp trader) and burning those instead. 

Although I accept the stamp trader would still end up having to pay some of that money in income tax. But that is his money then not mine. I own an assert (stamps) and I'm reducing the value of them (by burning) to zero. 

You could argue that by destroying my stamps I've increased the rarity and therefore the value of the stamps held by other collectors. So, in theory, the total value of the UK's rare stamps remains the same and that is fine with me. 

Yeah, think I'd just pay the tax.

Karl Marx made points that seem very valid w.r.t concentration of money, although he got it wrong on who would end up with it ( pension funds rather than robber barons).  There's no point the wealth of a nation increasing if only a few people have all the money.  They almost never spend enough of it, (human tendency to hoard, ' prudence') and it usually ends badly 

Explain if I burnt £100 million notes and the government replaced them by reprinting another £100 million(could even have the same numbers) who loses?

You've changed the argument here. The original argument contended that the Govt could simply print the money to replace the lost money in the respective Estate.

But in order to ascertain Estate tax there needs to be a valuation carried out of the various assets in the Estate.  So if Lord ash pulls out the money in cash, and presumably pays the relative personal tax on it, then burns it, then it won't be in the valuation and the tax won't be due.

I f he simply burns the money by converting Estate assets to cash without paying tax then it remains part of the valuation and is then taxed at the relevant rate. So the government doesn't need to print money to replace that which was burnt because it would still be up to the Estate to find the resources to pay the tax bill.

As I read the Lord Ash 2000's original post was that if the government wanted too much inheritance tax rather than pay it he would change his assets to cash and burn it with his corpse. I understand that if his estate still had any assets they would still be liable for tax. It would still be a pointless protest.

In that case, yes. But perhaps it was more of a symbolic protest?

But if they were wise they would better impact the economy by giving to more people as more will be spent and stay in active circulation.  So the protest of burning his stamp collection only proves the benefits of active tedistrredion

It is true that many wealthy families set up trusts for a variety of reasons, including inheritance tax planning.  Often it is as much to do with the elder generations not actually trusting the younger generations to preserve the family wealth through excessive spending, divorces, drugs etc.  Nowadays (since 2006) you are very limited to what you can put into trust (the main exception being assets which qualify for an effective exemption from IHT in their own right).  There is an immediate charge to IHT (at 20%) if the assets settled exceed the individual's IHT nil rate band of £325,000.  A couple have access to two of these, so the normal maximum that can be settled is £650,000.  This uses up the individuals nil rate bands on death unless they survive the gift by 7 years. Once in trust, the assets are still subject to IHT - essentially a charge to tax at a rate of 6% on each 10th anniversary of setting up the trust.  This spreads the tax charge rather than avoiding it entirely.  Does that sound so bad?

A lot of old wealthy families set up trusts decades ago when it was far easier to settle very large sums into trust.  Trusts can go on for several generations so many of these old historic trusts still exist.  It is much harder now and very much dependent upon what assets the families own,  not 'loopholes', and how much they want to settle.  The three main types of lifetime trust set up nowadays are probably 1. to receive pension/death benefits, 2. For parents to pass some money to children to fund house deposits without wanting to give them the money outright, 3. Grandparents funding school fees.  None of this is outrageous tax avoidance and normally as much to do with not actually giving the money outright to young people.  I've started saving for my new baby with a child ISA but I have to say I'm a little nervous about building up too much that she will have complete unfettered access to at age 18.  A trust would be a good answer if I could be bothered or if the amounts were a bit larger and I may still revisit that.  

Does it matter where the trust resides? For example, there are £617 BILLION of money in funds in Guernsey, a significant proportion of which is family trusts. Why keep the money here if there's not a tax advantage?

"Trusts may be used for legitimate tax planning purposes in other jurisdictions. This may apply not just to taxes payable on the death of the settlor or any of the beneficiaries but also to taxes payable during their lifetimes. For example, since assets transferred into a trust do not form part of the settlor's assets, this might mean that the settlor may not be liable to income or capital gains taxes on those assets - potentially reducing the amount of the settlor's tax bill."

For me the main issue with the super rich is that they are able to exploit tax avoidance loopholes which the average man in the street cannot due to the cost of exploiting those loopholes.

In reply to Toerag:

Think again. There is zero tax advantage to offshore accounts. And open to everyone who has a £1. The main purpose of offshore banking is to enable customers to hold money in multiple currencies to avoid constant exchange costs. You can also compound interest for longer before paying tax but this is a negligible benefit and open to all.

https://www.moneysupermarket.com/savings/offshore-accounts-guide/

As someone with a little bit of experience in these matters, I do tear my hair out sometimes at these popular notions of magical tax-breaks for the rich only. They are a figment of the popular imagination, as my earlier post on trusts and the subsequent excellent clarification by Skyfall both explain in some detail. At least where IHT is concerned.

If you don't believe me, kindly point out which loopholes you see being exploited by the rich. Let's leave corporations out of the discussion. The most egregious tax avoidance in the public eye today has been the use of "loan schemes" exploited by middle income teachers and IT staff whose only excuse is that they were poorly advised. In that sense the rich do have an unfair advantage. A more trustworthy adviser would have told them to pay the income tax from the outset, as there is no legal way around it.

https://www.gov.uk/government/news/government-details-scale-of-loan-scheme-...

What most people don't quite get is that by the time the money lands in your pocket to spend, it is taxed at (almost) the same graduated rate as everyone else no matter how rich or poor you are.

And while we're at it, how about all those people who obtained bicycles cheap and with tax advantages due to being deducted before tax due to a government plan to get everyone on their bikes to go to work.

Except that almost all those bikes bought were not bikes for travel to work, but mountain bikes for pleasure, and virtually every person who bought them were teachers, council workers and the like, because those are the occupations where it was pushed.

Pot, kettle, black - use those words in a sentence.

I'm not talking about standard bank accounts, I'm talking about funds and 'investment vehicles' - private equity, trusts, pension funds etc.  Why does Stephen Landsdown (worth $2.5 billion) (amongst others) have his 'family office' company based in Guernsey? It's not for fun.....

You can't leave corporations out of it as that is one way the super rich store their money. Example - Guernsey has zero corporation tax and zero capital gains tax.  Dividends paid to Non-resident shareholders attract zero tax.  Should a wealthy UK person own their property portfolio themselves or set up a Guernsey company to do so?  Joe Bloggs could also do that, however the cost of running a company outweigh the benefits of tax avoidance so he cannot benefit, whereas Mr property developer's benefits from tax avoidance outweigh the cost of running the company so he can avoid the tax.

I love the way poor people think they understand the workings of the super rich. Bless.

Thanks to the Paradise Papers leak, we know a bit more about it.

I'm happy to talk about single owner businesses incorporated for tax purposes. I was just trying to avoid an escalation of the discussion to embrace Amazon et al.

Dividends are taxed in the country of residence of the taxpayer, not the location of the company that generates the dividend. That's why you pay no dividend tax in Guernsey. Your company can be in Timbuktu but your dividend is taxable in the UK because you live in the UK.

Running a company costs peanuts and Joe Bloggs, in the form of hundreds of thousands of moderately paid professionals such as IT workers and other freelancers, is an enthusiastic adopter of the personal service company model. There are considerably more moderate-earning "tax avoiders" than rich ones. But I stress I'm not trying to criticise ordinary earners. Only to point out that the facilities that are available to "the rich" have been democratised. Anyone can use those tools. And does.

The most egregious tax avoidance in the public eye today has been the use of "loan schemes" exploited by middle income teachers and IT staff whose only excuse is that they were poorly advised. 

'Less than 3% of people affected by the loan charge work in medical services and teaching combined.' Leave middle income teachers out of this!

Hmmmm. I got a great discount on a new mountain bike via my LA employer. I use it in my job throughout the year. All the people I know who bought bikes under the scheme do use them to get to work and cycle a lot more now they have them. Half those people are not teachers or council workers either so a bit of a generalisation I'd say.

So, I'm not sure how the UK tax rules work but I would expect that the combined corporate and dividend tax rate is equivalent to the personal tax rate for a wage earner? Does that then mean that there is a higher dividend tax rate placed on dividends paid out of zero corporate tax rate off shore companies?

The use of a company is a deferral mechanism, not an avoidance or evasion mechanism. Often these personal services companies or professional corporations are owned by self employed individuals who don't have access to company pension schemes. So the deferral works a little like this:

My company earns $100,000 but I only need $50,000 to live. If I take out the full $100,000 personally I have to pay the highest bracket tax rate which is inefficient to me so I leave the $50,000 in the company and pay the corporate tax rate (which is generally lower than the personal tax rate) on the $100,000 but only the additional dividend tax rate on the $50,000 I have taken out personally (the combined dividend and corporate tax rate is USUALLY close to the personal tax rate of wage earners). I now have $50,000 still in my company which has only attracted the corporate tax rate and I can invest this money, either back into my business or into other investments. Either way this money becomes part of my own "pension" fund.

BUT, as soon as I take it out personally I have to pay tax on it to the equivalent of the personal tax rate. So the $ in my pocket has been taxed at the same rate as the dollar in yours.

PS. I have used $'s as I don't have a pound sign on my keyboard and can't be arsed to look for one

All the people I know who got these bikes come under the headings I mentioned.

It may well be different in your neck of the woods, but it most certainly goes on.

Nail on the head. The private companies I've worked for that claimed to be lean, mean business machines tended to waste money but (fortunately for them) had their teeth firmly clamped on the taxpayers tit.

You are correct that corporation tax + dividend income tax is roughly equal to income tax + NI, especially so the higher up the income scale you go. Low earners legitimately avoid more tax than high earners by this route.

If you want to defer tax in order to turbocharge the investment performance of your excess income there are easier ways than leaving it in your personal service company. How about putting it into a pension? Contributions are credited gross of tax.

As for using an offshore personal service company to avoid corporation tax, this runs foul of the GAAR

https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse...

if the primary purpose of arrangements is the avoidance of tax.

Thanks. Slightly different rules here in Canada but similar principles apply. Dividend income doesn't attract any retirement savings capacity so no option to save tax with a pension fund. I imagine the off-shore rules are the same but these change. The Cayman Islands would be our closest "tax haven"

A Guernsey resident is taxed on dividends from a Guernsey company at 20%, the same rate as income tax, so yes, there's no gain for a resident like me there. However, a non-resident doing so pays no tax to Guernsey. So if someone in, say Canada, doesn't pay tax on foreign-earned income it would be in their interests to use an offshore company to channel their earnings through, especially if capital gains are involved. 

We would pay tax on any foreign earnt income that we receive personally.

As an aside, we don't have inheritance tax in Canada.