The latest news on Advanced Payment Notification

How do tax avoidance schemes give users a tax advantage?

May 6, 2015 | Financial Saviour

Tax avoidance is a very misconstrued topic, mainly because many people don’t realise that avoiding tax is actually perfectly legal and legitimate – it is tax evasion that will land you in hot water, not tax avoidance. Therefore, how does a tax avoidance scheme help you?

The short answer is that money is saved; either as income tax on the interest you receive or on capital gains tax when you sell. The long answer must address precisely how this is done and also how to ensure that tax avoidance doesn’t slip into the realm of tax evasion.

Independent Savings Accounts, or ISAs as they’re commonly abbreviated and known, are tax-free accounts actually encouraged by the government to help people save on income tax payments. They are completely legal and provide you with an advantage over alternative taxed accounts, but the fixed rate and accessibility allowance must be considered.

Similar to ISAs are pension schemes. These may not be thought of as a method of tax avoidance, but the money that is put into a pension scheme is actually again tax-free, although there are conditions outlined by HMRC that result in an individual’s pension savings being taxed; see these on the link at the end.

Another more commonly exploited tax avoidance scheme, hence turning into potential tax evasion, is donating to charity via gift aid. There have been cases of celebrities, whether intentional or not, evading tax with payments into illegitimate charities, so to avoid falling into the same trap, do your research before paying into any scheme that sounds too good to be true.

For more information on tax avoidance or help resolving a tax dispute that has spurned from you gaining a tax advantage, get in touch with Financial Saviour today or fill out our enquiry form for an immediate response.

You can also find out all you need to know here about the rules on taxing pension schemes.

 

Back to News