Prime Minister David Cameron’s right when he says we’re all in it together – but whether he meant tax avoidance or pulling the country out of an economic nosedive is questionable.
Cameron has published his tax returns and other political figures are set to follow suit, but the fact is we are all avoiding tax absolutely legally if we benefit from any state-sponsored scheme that aims to save tax.
That includes saving in an ISA, which offer growth of shares free of capital gains tax, the Seed Enterprise Investment Scheme (SEIS) or other venture capital schemes for business that offer generous tax breaks for business angels…and the list goes on.
The point is avoiding tax is not the problem – it’s evading tax by failing to declare your earnings or gains or investments in tax havens or anywhere else.
ISA savers and tax avoidance
The argument that is wheeled out is that the rich take advantage of sheltering their cash in offshore tax havens because…well, they are rich and can afford to while cleaners, nurses and most bank workers are not quite so well-off.
Ordinary ISA savers don’t keep cash offshore because they simply don’t have enough to make paying the fees worthwhile.
But it is not illegal to have offshore savings or investments.
For instance, how many expats have pensions, savings or property in the UK even though they may have left Britain many years ago?
Behavioural economics and paying less tax
Another point is opponents would like to pillory David Cameron if he benefitted from an offshore trust, but to be fair, none of us are responsible for the source of money left to us in a will and whether the right tax was paid on the cash.
The state encourages people to save and invest by offering tax breaks. The tax breaks lure money into specific sectors of the economy that the government wants to see grow.
The technique is called ‘behavioural economics’ which is a branch of psychology that influences the way people save and spend money.
ISAs and changes in how income tax is charged on savings and dividends that came into force this financial year are an excellent example of the government influencing savers with behavioural economic policies.