Government plans to clamp down on tax avoidance by individuals with more than £1 million in assets have been deemed a boon to enterprise investment schemes (EIS) and venture capital trusts (VCTs).
In the annual Autumn Statement address, Chancellor George Osborne said some of the extra £77 million committed to HMRC would go towards expanding its Affluent Unit to ‘deal more effectively’ with people of a £1 million net worth.
The government said it would seek to close ‘aggressive’ tax avoidance schemes – a move likely to appease the public given the recent high profile exposes of stars from TV and film caught using tax maximisation schemes to pay as little as 1.25% tax on their earnings.
Steve Petrie, director of private clients at Towergate Financial said clients should continue to make use of statutory tax reliefs, particularly those where the government has been encouraging investment in vehicles such as EISs and VCTs.
‘I think that they should be looking at all of the statutory reliefs, so the main ones will be VCTs, EIS and Business Premises Renovation Allowances… EIS are going to be big.’
EIS will be especially useful, since this year, clients will be able to carry over 30% tax relief for the first time this year - in comparison to the previous rate of 20%.
Sophie Dworetzsky, partner in international law firm Withers, said the government’s move was a significant widening of the net, and people would have to be ‘very, very careful with their tax obligations’.
‘People need to be aware the Revenue will be taking an increased interest in the affairs of more people than they have previously,’ she said, cautioning that anyone looking for a ‘magic bullet’ would end up in trouble.
‘There are all sorts of streamlining measures and I don’t think there is a magic bullet. Going around looking for a thing that will get you less [tax] will get you investigated.’
She said she expected increased interest in VCTs and EIS, especially the more ‘impressive’ and well established schemes.
Turning to the kind of evasion the government is likely to be focusing on, Neal Todd, corporate tax partner at Berwin Leighton Paisner said he expected any schemes where money is hidden to come under fire.
‘I suspect a great deal of [tax] planning will and should go on… people wake up and think “I want to buy a property or a company and how can I do that in a way that is tax efficient”, which is perfectly acceptable.’
‘The people who put the General Anti-Abuse rules (Gaar) together went specifically at what they called the most egregious or extreme tax planning.’