No tax on savings. Simples!

Tax changes – when will they actually happen?

In recent years Chancellors have taken to announcing tax changes a year or more in advance, so it’s easy to get confused about what happens when. The Mail usefully reminded readers about key dates coming up. On April 6^th, the personal tax allowance rises to £10,600 and the higher rate tax threshold to £42,385; the ISA limit rises to £15,240 and the Junior ISA limit to £4,080. Married couples can transfer up to £1,000 of their personal allowance to a spouse who is a basic rate taxpayer, with up to £200 per year tax saving.  In May, air passenger duty for children aged under 12 is abolished, and in March 2016 it is abolished for children aged under 16.  In September, the new childcare scheme with up to £2,000 per year tax breaks starts up, and so does the new Help to Buy ISA.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Tax avoidance and evasion made the front pages of the press again in February, with the distinction between the two lost on most journalists.   

 Let us make two things clear for a start:

• Tax avoidance – planning your affairs within the framework of the tax legislation to reduce your tax liability – is legal.

• Tax evasion – not paying tax due by withholding information from HMRC or other means – is illegal.

Tax avoidance ranges from such simple actions as investing in a fund via an ISA rather than directly to complex schemes designed to exploit loopholes in the tax law. At the benign end of the scale, HMRC will not be interested in what you do. At the aggressive end of the scale, HMRC are likely to deny you tax relief under its recently acquired accelerated payments powers and then leave you (and your fellow scheme users) to challenge their view in the courts.

Denis Healey, a 1970s Labour Chancellor of the Exchequer, famously remarked that “The difference between tax avoidance and tax evasion is the thickness of a prison wall.”  In reality, criminal prosecution for tax evasion is still relatively uncommon: in 2013/14 HMRC undertook 915 prosecutions and secured 716 convictions.

The HSBC Swiss account holders’ list which grabbed so much coverage last month has to date yielded only one prosecution. However, that reflects both the ‘dirty’ nature of the information – it was stolen data – and exemptions available under HMRC’s own Lichtenstein Disclosure Facility. More relevant from the Treasury’s viewpoint, if not that of the editorial columnists’, is that the HSBC list added £135m in tax, interest and penalties to the government’s coffers. Collecting cash is generally more important for the Exchequer and HMRC than battling in the criminal courts.

If there is any lesson to be drawn from the HSBC saga, it is that tax evaders can no longer rely on secrecy. Driven in part by US legislation (the Foreign Account Tax Compliance Act – FATCA) disclosure of information between countries is becoming the norm, even for the traditional tax havens such as Monaco. Within a couple of years, the only countries still adhering to secrecy will be those where you would think twice about leaving you money.

Meanwhile, as the tax year end approaches, have you yet sorted out your legitimate tax avoidance through ISA and pension contributions?

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.