ÿþ<html? <head> <style type="text/css"> /*<![CDATA[*/ A:link { color:#FFFFFF; text-decoration: none} A:visited { color:#00CCCC; text-decoration: none} A:hover { color:red; text-decoration: none} /*]]>*/ </style> <title>UK tax avoidance schemes</title> <meta name="resource-type" content="document" /> <meta http-equiv="Content-Type" content= "text/html; charset=us-ascii" /> <meta http-equiv="Content-Language" content="en-gb" /> <meta name="Robots" content="index, follow" /> <meta name="Distribution" content="Global, UK" /> <meta name="Revisit" content="30 days" /> <meta name="MSSmartTagsPreventParsing" content="TRUE" /> <meta name="abstract" content="tax avoidance schemes"/> <meta name="subject" content="UK tax avoidance schemes" /> <meta name="description" content= "UK Tax Advisor - tax avoidance schemes" /> <link rel="alternate" type="application/rss+xml" title="RSS" href="http://www.uktaxadvisor.com/rss/rss-feed.xml"> <meta name="keywords" content= "UK tax, avoidance, schemes, income tax, capital gains, enterprize zone, venture capital trusts, enterprise investment scheme,US,American, IRS, 401K, Roth, IRA" /> </head> <body bgcolor="#C2C2C2" text="#FFFFFF" background= "Graphics/background1.jpg"> <table width="75%" border="2" cellspacing="2" cellpadding="3" align="center" bordercolor="#020202" bgcolor="#C2C2C2"> <tr bgcolor="#000000"> <td colspan="2"> <div align="center"> <p><font face="Verdana, Arial, Helvetica, sans-serif" color="#FFFFFF"><font size="7" color="#FFFFFF"><font face= "Times New Roman, Times, serif"><i>Stephen J. Dann</i></font><font size="2" color="#FFFFFF"><font face= "Verdana, Arial, Helvetica, sans-serif" size="4"><br /> <font color="#C2C2C2">~ ATT ~<br /> UK Tax Advisor</font><font size="2" color= "#999999"><font face= "Verdana, Arial, Helvetica, sans-serif"><br /></font></p> <p><font face="Verdana, Arial, Helvetica, sans-serif" color="#FFFFFF"><font size="7" color="#FFFFFF" face= "Palace Script MT"><font size="2" color= "#FFFFFF"><font size="2" color="#999999"><font face= "Verdana, Arial, Helvetica, sans-serif" size="4">Tax Avoidance Schemes</font></p><br /> <br> <script type="text/javascript"><!-- google_ad_client = "pub-5003345588375084"; google_ad_width = 728; google_ad_height = 90; google_ad_format = "728x90_as"; google_ad_type = "text_image"; google_ad_channel =""; google_page_url = document.location; google_color_border = "333333"; google_color_bg = "000000"; google_color_link = "FFFFFF"; google_color_url = "999999"; google_color_text = "CCCCCC"; //--></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> <u><a href="sitemap.htm">Click here for Other Pages on this Website</a></u><br> <p><font face="Verdana, Arial, Helvetica, sans-serif" color="#FFFFFF"><font size="7" color="#FFFFFF"><font size="2" color= "#FFFFFF"><font size="2" color="#999999"><font face= "Verdana, Arial, Helvetica, sans-serif"><br /> <br /></font></p> <h5><font face="Verdana, Arial, Helvetica, sans-serif" color="#FFFFFF"><font size="7" color="#FFFFFF"><font size="2" color= "#FFFFFF"><font size="2" color="#999999"><font face= "Verdana, Arial, Helvetica, sans-serif">Avoidance or Evasion</font></h5> <br><p><b>Nobody is obliged to so arrange their taxation affairs in such a manner that the Exchequer may extract a larger amount than is strictly due under the law. <br><p>Parliament has defined through Statute the rules by which taxes are to be calculated, and so long as you remain within those rules anything yo udo to reduce your taxation liability, whether it be by <br><p>placing money into a pension plan, or investing in an Enterprize Zone will be legal. <br><p>If, however, you make false representations to the Authorities, claiming allowances or reliefs yo uare not entitled to, then this falls under <br><p>the description of evasion, and is distinctly illegal. In many instances the entire proceeds from such action will be lost, and severe penalties (including imprisonment) may ensue. <br><p>Advisors who knowingly, or through negligence, assist in evasion may also face imprisonment. We are expected to know better. <br><p> <br><p><u><h5>PENSIONS</h5></u> <br><p> From 1st April,2006 ("A Day") major changes to pension legislation were introduced which will have wide ranging and largely beneficial implications, especially for British expatriates. Prior to this date most expatriates were excluded from contribution to UK approved personal pensions unless they had earnings subject to tax in the UK or were allowed to remain members of UK approved employers' schemes. This has changed with effect from "A Day". <br><p><u><i><h5>Outline</h5></u></i> The most notable change has been removal of the "concurrency test" which prevented investors from being active members of two concurrent pension schemes unless they were linked to the main employer's scheme via the Additional Voluntary Contribution route. From now on any UK citizen will be able to join any number of pension schemes at the same time, but subject to the following restrictions: a) Maximum contributions into a plan are the higher of £3,600 per annum ir 100% of earnings (subject to the overall maximum annual allowance detailed below); b) The annual allowance has been set for the 2006/07 year as £215,000, rising to £255,000 by the year 2010/2011. c) A new concept, the Standard Lifetime Allowance has been introduced. This is the maximum amount of pension fund which will be tax-free. for 2006/07 this is set at £1,500,000 and will increase to £1,800,000 by 2010/2011. Provided these limits are not exceeded individuals can obtain tax relief on contributuions and the funds themselves will remain tax-free. Eventually 25% of the funds can be withdran tax free. Pensions will continue to be taxable in the same manner as before. <br><p><u><i><h5>Age Restrictions</h5></u></i> Until April 2010 the minimum age to draw a pension benefit is 50 years except in instances of ill-health when a pension may be drawn earlier. From 2010 the minimum age rises to 55 years. Pension benefits must be taken no later than age 75. <br><p><u><i><h5>ExPatriates</h5></u></i> If there are earnings subject to UK tax then pension contributions can attract full tax relief. There there are no such earnings pension contributions can still be made but without the benefit of tax relief at source. I detail below the method by which contributions may be made and the relief available. Most expatriates wil lfall under Category 2 enabling them to make unlimited contributions to a UK approved scheme. <br><p><u><i><h5>Category 1</h5></u></i> <b>Non-resident but still a member of an existing UK scheme following secondment abroad.</b> In this situation it is possible to top-up contributions or alternatively consider setting up a parallel personal pension plan thereby providing diversification and flexibility. <br><p><u><i><h5>Category 2</h5></u></i> <b>Non-resident but a member of an overseas pension scheme.</b> Contributions can be made to a personal pension plan in the UK. <br><p><u><i><h5>Category 3</h5></u></i> <b>Non-resident and member of a UK scheme with pension benefits preserved.</b> Contributionscannot be made to the preserved scheme but contributions can be made into a parallel personal pension. <br><p><u><i><h5>Category 4</h5></u></i> <b>Non-resident retired early abroad.</b> Under qage 75 it is possible to divert some savings or investments into an approved UK personal pension plan. <br><p> <br><p> <br><p><u><h5>ENTERPRIZE ZONE INVESTMENT</h5><br></u> <br><p> <br><p><u><h5>ENTERPRISE INVESTMENT SCHEMES</h5><br></u> <br><p>The Enterprise Investment Scheme (EIS) was introduced as a replacement for the Business Expansion Scheme. <br><p>In 1998 a unified EIS was announced, incorporating capital gains tax reinvestment relief. <br><p> <br><p><u>The investor can expect:</u> <br><p>* Income tax relief at the 20% rate of tax on the amount <br><p>invested in qualifying investments of up to £200,000 per annum. <br><p>The EIS relief may be withdrawn if certain events occur within <br><p>three years, e.g. shares sold <br><p>* Any gain arising on a disposal of the shares after three years <br><p>to be free from capital gains tax <br><p>* Deferral of capital gains (no limit) on any other assets, <br><p>by reinvesting all or part of the gain into an EIS company within <br><p>one year before, or three years after, the gain accrued. <br><p>The deferred gain becomes chargeable to capital gains tax <br><p>if certain events occur later <br><p>* Relief for any losses made on the disposal of EIS shares against <br><p>capital gains tax or, in some circumstances, income tax <br><p>* The opportunity to participate in the running of the business <br><p>and to receive reasonable remuneration for doing so. <br><p>As a result of the above, an individual could have a total tax saving <br><p>and deferral of 60% of his investment. <br><p> <br><p><u>The qualifying company</u> <br><p>* The company can enjoy the opportunity to raise finance, either for <br><p> initial start-up or for expansion. <br><p>The main condition is that the scheme be limited to companies with <br><p>gross assets of less than £15 million before, and no more than £16 <br><p>million after, the investment. <br><p> <br><p><u>Outline of the scheme rules</u> <br><p>Throughout its relevant three-year qualifying period, the company must: <br><p>* Be an unquoted company <br><p>* Have only fully-paid issued shares <br><p>* Be a trading company, carrying on a qualifying trade, wholly or mainly in the UK <br><p>* Exist for genuine commercial purposes, and not be part of a scheme for <br><p>the avoidance of tax <br><p>* Not be a 51% subsidiary of another company, or otherwise be under the <br><p>control of another company <br><p> <br><p><u>In addition:</u> <br><p>* An investor cannot be 'connected' with the EIS company, i.e. he or she <br><p>cannot own more than 30% of the shares, directly or indirectly <br><p>* Individuals who are paid directors or employees of the EIS company at <br><p>the time of the issue of shares are normally disqualified from claiming <br><p>EIS relief. Otherwise, qualifying investors can in certain circumstances <br><p>be paid for their work, provided the total remuneration package is 'normal and reasonable' <br><p>* The money raised by the EIS share issue must be wholly used for the <br><p>qualifying business activity <br><p>* Schemes that involve guarantees or exit arrangements will not attract tax relief. <br><p> <br><p><u>Qualifying trades</u> <br><p>The definition of qualifying trades is quite extensive, but certain activities <br><p>(such as most dealing operations, banking, leasing, legal, and accounting <br><p>services) are specifically excluded, as are those considered to be 'asset <br><p>backed' (farming, forestry, property development, hotels, and nursing homes). <br><p> <br><p><u>Spreading your risk</u> <br><p>Investors who do not want to put all their eggs into one basket could consider <br><p>an EIS approved investment fund or a Venture Capital Trust (VCT). <br><p>Approved investment funds are collective investment vehicles employing a fund <br><p>manager to invest subscribers' money in qualifying companies. The fund manager <br><p>brings together the total investment of a number of investors over a number of <br><p>companies. <br><p> <br><p><u>VENTURE CAPITAL TRUSTS</u><br> <br><p>A Venture Capital Trust (VCT) is an investment company <br><p>broadly similar to an investment trust. <br><p>It will be quoted on the stock market and will have to <br><p>invest at least 70% of its assets in companies that would <br><p>qualify under the EIS, and must distribute most of its <br><p>income by way of dividend. It must be able to demonstrate <br><p>a spread of investments: none can account for more than 15% <br><p>of the value of its portfolio. Individuals who subscribe <br><p>for new ordinary shares in VCTs up to £200,000 per tax year, <br><p>qualify for 40% income tax relief, provided the shares are <br><p>held for at least three years. In addition, any dividend <br><p>received by individuals aged at least eighteen in respect <br><p>of ordinary shares in a VCT is exempt from income tax. <br><p>Gains accruing to individuals aged at least eighteen on the <br><p>disposal of ordinary shares in VCTs are not chargeable gains, <br><p>but equally, no capital gains tax relief is available for losses. <br><p> <br><p><u>ONLINE TAX AVOIDANCE ADVICE</u> <br><p>If your tax affairs are straightforward, or you are overseas, then to <br><p>contact a tax consultant you would have to approach an <br><p>accountancy firm which is time-consuming and expensive. I <br><p>provide reliable advice on TAX AVOIDANCE issues online <br><p>for reasonable fees. The most recent cases are listed on <br><p>my "advice via internet" page. Once I have all the <br><p>related information I require, I can usually provide a <br><p>detailed and accurate response either from my thirty two <br><p>years of professional experience, or from my extensive <br><p>library within 24 hours. 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