Amateur tax avoidance

I am not sure how people dream up ideas as to how they can avoid tax and then just do what they think is necessary without talking to a professional adviser. Very often their “cunning plans” can be very costly indeed.

I have dealt with a client who arranged for his father to give away his parents' house to him to avoid inheritance tax. Firstly, it did not work from the IHT point of view because his parents and then his mother after his father's death continued to live in the property. After his mother died he sold the property and then someone told him he might have a capital gains problem. He came to me then. Without going into detail, I managed to get him past the capital gains issue (and he easily could have ended up paying capital gains tax if he had not ultimately sought professional advice) but the irony was that both his parents' estates were below the IHT threshold so there never was any inheritance tax to avoid anyway.

I also come across people who think they can avoid capital gains tax by selling their assets pregnant with gain(as we tax people like to say) whilst they are spending a year or so overseas. This is actually a difficult thing to do, and even if possible with careful planning, our amateur tax avoiders do not realise that whatever overseas country they will be spending their time in may well seek to tax the capital gain. At the very least they could end up incurring a lot of professional fees in the overseas jurisdiction.

Yes, it is possible to avoid UK capital gains tax if abroad, but usually only if you are gone for quite a few years. It does not work any more going to Belgium for a year and getting fat on cream cakes and Belgian chocolate in their lovely cafes (Belgians must have an immunity to such temptations) just to avoid CGT, and lovely as New Zealand is, you would really have to be there long enough to go native.

If you think you have a bright idea to avoid paying tax, maybe based on something you heard at the yacht club or whilst going home on the bus, please talk to a professional tax adviser who will put you straight on what you can or can't do, and who will either give you a sensible proposal or let you down gently. A modest fee paid can save you an awful lot of heartache and perhaps a lot of money too.

© Jon Stow 2009

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