There have been several well-documented situations where a high-profile individual’s tax planning has come under scrutiny, and the results have been unfavourable. A few readers have asked about whether their income and Inheritance Tax planning trusts are the right or wrong side of the Revenue.
Much stems from the publicity regarding high-profile individuals’ mistakes. Many of these have agents who often determine the individual’s financial adviser, and with such complex financial issues, schemes can be put forward by an ‘adviser’, keen to impress, that sail way beyond ‘close to the wind’.
In 2016, Lionel Messi received a 21-month prison sentence for evasion of taxes when his advisers had used offshore companies to protect his income from image rights. The sentence was then replaced with a fine as was his fathers.
In 2019, in a similar scenario, Cristiano Ronaldo was ordered to pay a fine of €19m after the court decided he had used an offshore company in the Virgin Islands to hide the income from his image rights. The deal agreed with authorities spared a jail sentence.
Jose Mourinho was also given a one-year jail sentence for hiding the income from image rights in in corporate structures in New Zealand, Ireland and Virgin island. In June, Samuel Eto’o pleaded guilty to tax fraud for hiding image rights whilst at Barcelona, and of course the talented Neymar was also prosecuted.
The theme is, of course hiding image rights income, and a theme the advisers above would have been aware of.
Boris Becker’s recent jail sentence was different, but his defence’s statement that he literally had nothing left from his fortunes was a tough read. In 2017, he had been declared bankrupt, but the court heard that he had deliberately hidden assets in the past. Last week Bernie Ecclestone was charged with fraud after a tax investigation, and in relation to £400m of offshore assets.
The list could go on for some time. In reality, however, the situation is not as bad as it is laid out. In the above scenarios, the individuals were very young, inexperienced and taking the advice of an agent and adviser. They would see no reason to question what is laid out in front of them. Eto’s agent was also given a jail sentence.
Looking at tax avoidance, or why tax goes unpaid, the numbers are interesting. In 2019 to 2020 in the UK, simple errors accounted for 146% more tax unpaid than actual avoidance. Failure to take reasonable care (the largest problem), legal interpretation, and criminal attacks were all a minimum of a 250 per cent greater problem than avoidance alone.
The issue that plagued the financial world in the past was that of tax avoidance schemes. In an attempt to mitigate income tax or Inheritance or Inheritance Tax, schemes were pulled together by tax organisations that were simply never going to work.
As always, the easiest Litmus test is 'what is the motivation behind the scheme?’ If it is avoiding tax, it will be found out. If its mitigating tax within current law, that’s mitigation, and perfectly normal and legal. Quite why some go to extreme lengths to avoid tax when the actual rules around mitigation are really quite simple, and, as such, most people will not pay excessive tax if they take the advice of a professional adviser.
The issue with marketed tax avoidance schemes is very much at the forefront of the Revenue who are keen to squeeze the promoters out of the market completely. Furthermore, the Revenue also actively look for people who use the schemes and educate them to exit them quickly.
Whether its capital gains tax, Inheritance Tax or income tax, there are countless generous rules that allow a navigation to reduce your tax for your family so that you pay what you are due, and only what you are due.
Always use an independent financial adviser, qualified solicitor and accountant and one that is known to a person you trust. They will be fully aware of all the potential options available which are secure and have been tested over time.
If you have a financial question please call 01872 222422 or email info@wwfp.net or visit us on www.wwfp.net
Peter McGahan is the chief executive of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
