What is Tax Planning?

They say in life, that only two things are guaranteed; Death and Taxes

Well, while the former may be out of your control, you actually can have a say in how the latter is dealt with.

Tax planning is about looking at your lifestyle aims, the assets you hold and how you deal with these. Then putting in place a plan or structure that will defer tax until a point you choose, lessen your liability, or even, with the right strategy, remove all liability to tax on your assets and any gains you may have made.

Tax agreements that your country of birth, or domicile may have with other countries and jurisdictions may mean that you are able to trade your assets in a protected environment, either through bond or trust structures that defer the tax payable now, and gain tax credits to be used against encashment later on.

Did you know that Her Majesties Revenue and Customs believe that certain asset structures are a way of masking high gains and as a result levy a 'Deemed Gain'.
This is HMRC's way of saying "we can't see how much money your investments are making, so we will just assume you are making high returns and then tax you on it".

Sounds unfair doesn't it? But actually, this can be used to your advantage.

How? Well, HMRC deem that you cash has appreciated in value by 15% every year. Of course, if you were living in the UK, this wouldn't be good, as you would receive a tax bill for capital gains tax on a profit that you may or may not have realised. A tax bill based on 15% when you've only made 5% would be a bitter pill to swallow.
BUT
If you live offshore and are resident in another country, HMRC can't tax you, so they deem that you have been taxed on the 15% profit, but at zero percent. This means that if you have only made 5%, you can now return to the UK the next financial year with your assets and make another 10% return tax free before you'd need to start paying tax on your gains (after all, you've already been taxed on it, but at 0%).
This can be used year after year after year, so if you're offshore for 5 years, you get 5x15% credit, which after annual compounding is a whopping 101.1%, less any actual gains seen in your asset value. The longer you stay offshore, the more credit you can accrue.

HMRC also give you a few more other tax toys to use to offset your tax liability. These will be covered in the next few blog entries.

You don't have to be British, but if you think you might end up in the UK one day, then you can start building up credits for later use.