Much is being made in the run up to the forthcoming general election about tax evasion and tax avoidance.
Clearly, if someone fails to report assets or income which should be liable to taxation, or fails to pay tax which they have been assessed as required to pay – then this is tax evasion. This is illegal and punishable as such.
However, a clear distinction needs to be made between tax evasion and tax avoidance.
There is nothing illegal about tax avoidance. There are a number of statutory provisions which have been specifically introduced by government to enable people to structure their affairs to reduce the amount of Income Tax, Capital Gains Tax or Inheritance Tax payable.
One example of this is Section 142 of the Inheritance Tax Act 1984, under the provisions of which it is possible to vary the terms upon which a person inherits from someone’s estate to improve the taxation consequences – providing this is done within two years of the date of death.
Similarly, a number of legal principles have evolved under English common law, such as trusts. Again, these provide perfectly legitimate ways by which individuals can make provision for their families in the most tax effective way.
However, specialist advice in this area is essential to ensure you are able to take full advantage of legitimate tax planning opportunities available, and so that everything is dealt with in accordance with the law with no inadvertent straying into tax evasion territory.
Do feel free to contact a member of the Napthens’ estate planning team to discuss your inheritance tax planning requirements.