Lord Fink, the former Conservative treasurer who threatened to sue Ed Miliband over his comments on tax avoidance, has conceded that the practice is normal in British society.
The peer — a multimillionaire former hedge fund manager turned Conservative donor and philanthropist — also said he did take “vanilla” tax avoidance measures, including transferring shares into family trusts while he worked in Switzerland.
Let me ask the obvious question then: since when was transferring shares into family trusts when in Switzerland vanilla tax avoidance?
My answer is it isn't, unless you live in a very rarified world. Call it the world of the 0.1%. I certainly never saw it or did it in my practicing career. Nor would I have endorsed it.
The point is "vanilla" must imply normal. This is not. That doesn't mean it is isn't legal. Tax avoidance is, by definition. But "vanilla"? I don't think so.
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“since when was transferring shares into family trusts in Switzerland”
There is no suggestion from the extract of the Guardian that you quote that the trusts were tax resident in Switzerland, merely that the shares were transferred whilst he was working in Switzerland.
And if you never saw shares being transferred into family trusts whilst in practice then goodness knows what you did for 20 years.
I think it fair to say I never set up a trsut for tax planning purposes
For pretectiion of children and will trusts etc, yes
But, for pure tax planning: I am always made it clear that I would not do that
If a client did not like it they went elsewehere
He lived in Switzerland while working for Man.
Whilst at Man, he was paid some of his discretionary/bonus pay in the form of shares.
These he put in trust.
No different to the Stemcor shares Margaret Hodge has in trust for herself and family.
But it was tax avoidance
It appears he agrees
My question was whether this was vanilla
I think it is not
Yes it was for tax avoidance – perfectly legally so.
And indeed Hodge and Milliband have indulged in the same thing – setting up trusts to avoid IHT.
Are you saying it ok for Hodge to do it but not for Fink?
I did not say if it was right or wrong
I said I would not do it
And it was not normal i.e. vanilla
Please get the point
You are avoiding the question. I didn’t ask if it was right or wrong. I asked if it was OK for Hodge to use a trust to avoid tax, but not Fink.
So, I ask again:
If Fink’s trust-based tax avoidance was “not normal” or “vanilla”, are Margaret Hodge’s similar tax arrangements also “not normal?”
If Margaret Hodge has done that it is not, in my opinion, “normal” either
Or “vanilla”
I am not sure she has claimed it is. That was my point
Happy?
On the Miliband IHT thing – this is the Right sulking after getting done over on the Fink business.
I thought all that happened was that his mother signed a deed of variation to Ralph Miliband’s will. This is something absolutely anyone can do within their own family within two years of death for a number of reasons unrelated to tax avoidance. Indeed Ralph could have structured his will as such prior to his death and no one would be talking about it alleging avoidance in this case.
As it is, it appears Ed sold his share of the house to David and paid the tax due on the gain. This is not supporting the Right’s shrieks of hypocrisy.
But I am aware of Karl Rove’s dictum – if you’re explaining you’re losing. And that’s the strategy the Tory press is applying by dragging this up. Chuck loads of muck some will stick. Muddy the waters and force a losing draw.
Absolutely right
The press are accusing Miliband of maybe doing what hundreds of thousands of Mail readers do
Transferring shares into family trusts is pretty common, and I think a lot of people would call it vanilla planning.
Working in Switzerland is fairly unobjectionable, of itself.
Moving to Switzerland to ensure that you get a better tax treatment for the transfer you intend to make is, in my view, rather more aggressive than “vanilla”.
But if you decide to transfer shares into trust while you happen to be in Switzerland anyway, for separate reasons, then I think that stays as vanilla. Deliberately waiting until you move back to the UK to do it, in order to increase your UK tax liability, would be going a little above and beyond the call of duty.
Andrew
As usual, we disagree
That’s normal
My argument is this planning is not
As a matter of fact it is not
So I do not think it is vanilla
As I said though, that is all about perspective
We do not share a pespective
Richard
“We do not share a perspective”
So it would seem.
As I say, I think that if something is vanilla if you live in the UK, it stays vanilla if you live in Switzerland – except perhaps where the move is done to facilitate the planning.
To pick up another poster’s comment, I consider that if you are confident that HMRC would not query your technical position, then you are carrying out vanilla tax planning.
In my view that is the case even if they might check the facts (that a particular company qualifies for EIS, for example), so long as they would agree the technical treatment given the facts that have been (correctly and fully!) disclosed.
Again, we disagree on what “vanilla” means
I am very confident the person on the Clapham Omnibus would agree with me
But you may disagree
Which is fine
But I am wholly entitled to my opinion despite what others say
Of course you are entitled to your opinion 🙂
How would you define “vanilla”? You’ve said it implies “normal”, but that’s a bit of an ambiguous term in itself.
Normal to the person on the Clapham Omnibus
“Normal to the person on the Clapham Omnibus”
I don’t know what you mean by that.
Do you mean
– “the person on the Clapham Omnibus would normally do it themselves” (ie it’s normal for a person of modest means living in London)
or
– “the person on the Clapham Omnibus would think it normal for a person in those circumstances” (ie it’s normal for a rich person living in Switzerland)
Or something else?
Have you never heard of Lord Denning?
“Have you never heard of Lord Denning?”
Yes, of course.
But that’s not relevant to trying to interpret what you mean when you say “Normal to the person on the Clapham Omnibus” – there are several (I’ve given the two I think most likely) possible interpretations of that phrase.
What do you think Dennin would have said?
I try not to put words in the mouths of judges. It’s a bad habit that could lead to one taking an inappropriate view of the legal position.
I could see Lord Denning taking either interpretation, but probably “what the man on the Clapham Omnibus would think normal for a rich man living in Switzerland”.
To adopt the “What the man on the Clapham Omnibus would think normal for a Londoner of modest means” would lead to absurdities, and so far as I am aware Lord Denning tied to avoid those. Capital allowances would be abnormal, as would all agricultural reliefs and those relating to woodlands, EIS and SEIS… the only “vanilla” tax planning would be to put a bit of cash into an ISA.
Lord Denning would presume the man on the Clapham omnibus would not know what was normnal for the rich man in Switzerland
Your argument is so ludicrous it is absurd
“Lord Denning would presume the man on the Clapham omnibus would not know what was normnal for the rich man in Switzerland”
If that were the case, then I would expect Lord Denning not to use Clapham Omnibus man as a touchstone for determining whether the rich man has acted normally or not.
But I take it that you would argue that “normal” is what the man on the Clapham Omnibus does?
In which case normal could not include things like EIS, APR, any sort of trust planning at all, probably most will planning, putting significant amounts into pensions or ISAs, and so on.
In which case, can you think of any sort of tax planning that you *would* consider to be “vanilla”?
Complying with the spirit of the law
Pensions and ISAs do that
So can EIS
Let’s not tall nonsense and call these avoidance. They are not – only apologists for pushing legal interpretation of the law to its limits do that.
Avoidance is sailing close to the limits of what by any possible interpretation the law intends without breaking it
Now either accept those terms of engagement of please do not waste my time here
I think what you’re saying is that there’s no such thing as vanilla tax avoidance, as “vanilla” means staying well within the intentions of the law and “avoidance” means skirting the edges.
Using those definitions one can either have vanilla tax planning, or straightforward avoidance. Is that how you might put it?
I think then that the problem is that Lord Fink was using “avoidance” to cover all sorts of planning/mitigation/avoidance, so his “vanilla tax avoidance” is your “tax planning”. But observing that different people use these terms differently is nothing new 🙂
I have long argued that avoidance is fundamentally different from planning within the law
It’s staggering it has taken you so long to notice
I am trying to piece together your brief comments on avoidance into a coherent whole.
In your original post, you said that “transferring shares into family trusts when in Switzerland” is not “vanilla tax avoidance”.
The obvious reading is that there is such a thing as “vanilla tax avoidance”, although this is not it.
You have now explained that actually in your view tax avoidance can never be “vanilla”. That casts a new light on your original post.
I’d be interested to know your views on whether there is any middle ground between vanilla tax planning and egregious avoidance. Things like nil rate band trusts – unlike deeds of variation they are not expressly provided for in legislation, and so don’t fit the narrowest definition of vanilla, but they are very common and HMRC has never objected to them as a tax planning tool. Are they unacceptable avoidance, or do they fit into a slightly wider definition of “vanilla”, or is there a middle ground?
I have written it so often that I ma not doing it again for you
You may well join the deleted very soon
Sorry, forget that last bit – I’ve just recalled your comments later down the thread about Margaret Hodge’s family trusts not being vanilla.
It’s clear that you consider there to be vanilla tax planning, which is things expressly provided for in law (EIS, ISA, R&D, SSE and so on), and everything else is avoidance.
Please stop wasting my time
Have you no clients?
Richard
Isn’t there some mileage in trying to distinguish between legal and “not illegal”. I’m no lawyer but I suspect that if I were, I’d say there is no legal distinction in those terms but perhaps we can emphasise the moral difference in this way.
It is always stated (as you have here) that tax avoidance is legal. To me, and I suspect many, this implies that it is in some way endorsed in law. This is not always the case because broadly tax avoidance can be done in two ways:
a. by putting money into schemes that are actively promoted by the government because they want to encourage a behaviour or activity e.g. pensions, R&D tax breaks etc.
b. by using loopholes in the law.
These latter ones are not endorsed in law (other than by the potentially deliberate failure to close the loopholes) but rather are a consequence of the law failing to achieve its aims.
Somehow it feels to me that this distinction is important and not clear in most of this debate. I think of it as 3 levels:
1. tax planning (using mostly A above) which is legal
2. tax avoidance (using B above) which is not illegal
3. tax evasion which is illegal
(and of course the distinction between 2 and 3 is very blurred.) I’m sure I can’t hijack the terms in this way but do you think this distinction needs to be made clearer in the debate?
David W
There is, I think tax compliance which is wholly within the spirit of the law
Tax avoidamce that is legal but uses law in unanticipated ways
And evasion – which is illegal
Of course one problem is that no tax planning exercise is all that common, given that everyone’s circumstances are different. So when trying to work out whether something smells vanilla or not, you’re comparing small numbers, which introduces a lot of subjectivity into the debate.
Nonsense
This is just straightforwardly very rare
That’s a fact
Be fair, the poor chap might be lactose intolerant, or have taste problems which means he can’t tell vanilla from kippers.
If I had children then I would set up a trust for them. life is unpredictable a the best of times.
Are you aware most people do not have the means to do so?
That’s not the point.
Its either legal or not. Trusts in 2015 are legal.
I raied a question of normality
Not legality
Doesn’t that M Hodge have a trust set up for her children.
As far as I know she hasn’t
Her father did
Is that her fault?
Do you really know Margaret Hodge’s tax affairs that well that you know she has not set up trusts? Or are you taking her word for it as you singularly don’t take other people’s word if you don’t like their politics.
And no it’s not Margaret Hodge’s fault what her father did but then it’s not David Cameron’s fault that his father made money from legal tax planning but whilst you absolve Margaret Hodge from blame you are quite happy to allow mud to be thrown at David Cameron on here.
The idea that you are politically neutral is absurd.
I am not poliutcially neutral
I am biased to the poor
I am not defending Margaret Hodge though on this issue – much as I applaud her work on the PAC – and have already made that clear in other comments. It is for her to defend her tax affairs, not me
Hodge does indeed have several trusts set up specifically for her children, and she and Stemcor have admitted as much.
So?
That would also not be vanilla in my view
I would be quite consistent on that
‘Vanilla’ tax planning is where the outcome is exactly as would be expected by the tax authorities as appears to be the case here.
That you never came across such planning would suggest that you operated at a very low level of tax planning (or that you badly let down your clients and were giving them poor service).
I do not agree
I did not create tax risk for my clients, by choice, and always made it clear I would not
And I do not agree with your definition of “vanilla”
Ed comment: Keeping making the same comments breaches the conditions of this blog
And bores me rigid
So I am deleting you
Oh dear – now who’s taking the man and not the ball?
Maybe he should have called it Neapolitan or Choc Chip and then we wouldn’t have had to be debate it so much.
You might hear such terms on Newsnight
And they may not make the edit
The person on the Clapham Omnibus doesn’t do tax planning. I guess to those rich enough to do so it is indeed vanilla.
Exactly!!
Almost everyone does some tax planning, even at the most basic level of paying into a pension.
Planning within the law is not avoidance
Even you are not using the term
People pay inot pemsions to get a pejnsion, not to pay tax
“Planning within the law is not avoidance”
Tax avoidance is by its very definition legal. You are insinuating it isn’t.
Tax planning/avoidance can take very simply forms (like pensions or ISA’s) which almost everyone does, or things like trusts which fewer people start but are still common, and defined in law.
The point is, avoidance is legal, evasion isn’t. End of.
You ignore the GAAR
You might alos read my blogpost just published
You are one of the targets.
Something I don’t understand.
I’ve understood tax avoidance to be taking artificial steps with no economic reality in order to lower the tax liability. So, pretending your company is actually based in Guernsey or that all your sales take place in Luxembourg, or that your home in Portugal is actually in the Cayman Islands are all tax avoidance. Having an ISA isn’t tax avoidance because you have to put money into the ISA – something economically real happens.
So if Lord Fink put some shares into a trust in Switzerland when he lived in Switzerland how is that tax avoidance? Where’s the artificiality? Or have I missed something?
I argued it was not plain vanilla
If it was it would not have needed so many rules to govern it
So it’s distinctly un-vanilla tax planning?
I’m genuinely puzzled as to why this is being cast as tax avoidance. Is there an artificiality that I’m (in my ignorance) failing to see? Or is tax avoidance defined some other way?
I have answered this ample times already
I guess it’s to avoid Inheritance Tax.
It is probably about time tax avoidance was made illegal as well. The way it has been sorely abused over the years makes it plain that tax law needs to be tightened up.
This will undoubtedly cause problems in some circumstances, but this seems a small price to pay.
The answer is a mproper general anti-avoidance princiole
Ed note: I was amused by this comment but it was not suitable for publication
Letter in Independent:
Learn from the American way with tax dodgers
Despite the tough rhetoric there must be doubt as to how serious the UK tax authorities are about dealing with the large scale tax evasion facilitated by HSBC (and almost certainly by other banks where no information has yet leaked out). If they were serious there are some simple steps they could take.
America has a box on the standard income tax form where people tick whether or not they “have control” of a foreign bank account. If “yes” they send the location of the account and, within broad bands, how big it is to the US Treasury.
This declaration is made under penalty of perjury so, rather than complex one-sided negotiations with the tax authorities about the purpose of an account, there is the simple offence of perjury. This is easily proved by the signature on the tax return when evidence emerges of a secret account.
Comparatively few people are prepared to commit perjury and, if faced with evidence that they have, swiftly pay the tax and penalties rather than risk prison.
Minimising evasion is one of the ways that the America keeps tax rates down for everyone. There is no evidence that these policies have wrecked the US economy, even though they may not be to the liking of some of our “wealth creators” in the City.
We often import bad ideas from America. Why don’t we try importing some good ones?
John Kennett
Hook, Hampshire