By now, George Osborne should not be easily upset. Perhaps he’s a more sensitive soul than we thought, but he’s confessed to being shocked that lots of wealthy people pay little income tax. Oh, come on. Who needs tax evasion when there’s so much government-sponsored tax avoidance to be had?
Being wealthy gives you flexibility to live off your capital, while minimising your taxable income. The most obvious way of shielding the amount the taxman can shovel from your stores is pension contributions; a top rate taxpayer can save £25,000 by putting the maximum £50,000 into his pension. With clever use of the (freshly-minted) rules on carry-back and carry-forward of contributions, that ceiling can be raised.
Then there is the 30% tax credit on subscriptions into Venture Capital Trusts, while the amount that our wealthy man can put into Enterprise Investment Schemes, with similar tax breaks, has just been doubled to £1 million. Many established VCTs are still tapping the market for new funds. They are comparatively low risk, and offer a tax-free yield, yet far from cutting back here, the Chancellor is asking the EU to ease some of the restrictions to make them more attractive. He’s also invented a record-breaking new tax avoidance device. The Seed Enterprise Investment Scheme is so attractive that it’s limited to £100,000 a head. Investors get 50% income tax relief, and can offset the money they put up against any capital gains tax liabilities in this tax year. This officially-sanctioned tax break is worth up to 78% of the investment.
To our wealthy individual, the new, higher limit on an Individual Savings Account of £11,280 may not seem like much, but if his wife has one as well, and both have been contributing the maximum over the last decade, the pot could easily be worth over £250,000 today, and any income drawn down is tax-free. The most attractive National Savings products have been withdrawn, but our wealthy man can still put £30,000 each for himself, his wife and children into Premium Bonds. He might find the monthly stream of £25 cheques more of an irritant than a delight, and he won’t win the £1 million jackpot, but the prizes are tax-free.
None of these tax shelters need residence in the Isle of Man or the sort of clever-clever avoidance devices that, say, Barclays offers its tax-averse clients. They are all officially-opened loopholes in the income tax wall. Osborne can hardly complain if the wealthy exploit them. After all, he created some of them himself.