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  • Never Mind the ‘F’ Word – What about The ‘L’ Word?

    9 February 2020

    Andy Wood

    Never mind the ‘F’ word – what about The ‘L’ word – Loopholes & Tax

    The F Word was a cooking programme presented by Gordon Ramsay, a man as famous for the frequency of his use of the programme’s titular expletive as for his culinary skills.

    Similarly,  the use of the L word – ‘loophole’ to be precise – is peppered throughout the press without, it seems, any thought for what it might mean.

    Last weekend, there was an article in the Telegraph entitled ‘Three entirely legal ways to cut your family’s inheritance tax bill’. That article discusses (briefly) the APPG’s recent report on ‘Inheritance Tax & Intergenerational Fairness’.

    Now clearly, in this area, many terms are in the eye of beholder (or the behold-ee). A bit like the ‘A’ word – Avoidance. But a loophole seems to me to suggest that there is a ‘gap’ or ‘inadequacy’ in the legislation. Perhaps not quite so far as the more academic description, ‘lacuna.’

    However, it is clear that journalists use this word to ‘sex up’ perfectly simple exemptions and reliefs in the legislation. For example, the report suggests a cull of most of the reliefs that are woven in to the overblown tapestry that is IHT.

    The article describes this as:

    “the abolition of almost all the existing legal loopholes used to avoid the widely disliked tax

    OK, perhaps we could give them that one. It’s pretty vague. But:

    [a reader] resorted to a legal loophole to rewrite his late father’s will. He used a ‘deed of variation’ to divert a seven-figure inheritance…

    Come on now. This is an explicit, statutory provision and was specifically introduced for this kind of situation (whether you think its right or wrong). This is despite the fact that ‘red’ Ed Miliband availed himself of the same provision.

    So not a loophole…

    Loopholes & Legislation

    There are other examples in the article.

    Historically, we’ve seen the non-domicile rules also referred to as ‘loopholes’ in the past. However, these are not loopholes. Again, you might view these rules as wrong, or anachronistic, but they have been built in to our legislation and have been reviewed and revised in two major over-hauls.

    As such, they are not loopholes.

    ‘So what. You just sound like a grizzled old tax adviser’.

    Of course, you are right. But language is important in the debate over tax – where we talk about ‘avoidance’, ‘aggressive tax planning’, the ‘right’ amount of tax and ‘fair shares’.

    For example, I have made the same points about what is, and what is not, tax avoidance. Particularly with the ‘defence’ often meted out that ‘everybody is at tax avoidance’. A pension contribution here, and ISA there. I call this the John Redwood defence.

    However, this is bunkum as well. As with my comments above, these are statutory exemptions used as nature intended. That is not tax avoidance.

    Just like Gordon Ramsay, I feel I’ve got that off my chest…

    If you have any queries or comments about this article, or tax matters in general, then please get in touch.