George Osborne has told The Daily Telegraph “I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs – and to be fair it’s within the tax laws – so that they were regularly paying virtually no income tax. And I don’t think that’s right.”
“I’m talking about people right at the top. I’m talking about people with incomes of many millions of pounds a year.”
OK so how were they doing it?
According to the newspaper report it wasn’t fancy artificial tax avoidance schemes
HMRC found the main methods used by people to reduce their bills was writing off business losses, offsetting the cost of business mortgages and borrowing on buy-to-let properties – all against their income tax bills. Others took advantage of tax relief on charitable donations.
I’m sorry – can I take a step backwards here
1. They had tax relief on money they had lost by risking it investing in British businesses and jobs
2. They had tax relief on interest on money they borrowed to buy business premises used by British firms, occupied by British workers. But they were still paying the interest and, presumably any rent received was being taxed.
3. They borrowed money to invest in rental properties – which can only be claimed against income from those rental properties so the net income ( rent less interest) was presumably negative – so why pay tax on a loss?
4. They gave money to British charities – who then used it to benefit poor people here and abroad – surely that is a good thing? Even at the highest rate of tax relief you are still significantly worse off than if you had not donated the money!
Is George saying these are all bad things or does he not know we deparately need our richer citizens to risk their money investing in Britain now and in the future. Because if they don’t invest nobody else can afford to. They often take significant risks and are prepared to wait for a return over a long period. If you risk capital you expect a bigger return than tucking it into a building society. The losses indicate that sometimes they don’t succeed. But at least they tried.
There are actually only about 300,000 UK taxpayers earning over £150,000 and of those only around 13000 have incomes of more than £1. We should love and look after these people and make them feel valued for the money they contribute to the UK economy not hound them to want to go elsewhere.
And, more to the point, that’s a better strategy than trying to squeeze more cash by force because the tougher the deal the harder the tax specialists work to avoid it. Rich people can often afford to take the longer view and move income and gains back or sideways avoiding tax until the rates improve.
If I were a betting woman ( which I’m not) my money would not be on the Chancellor in this battle.
What do you think?