A muddled article was posted in the FT at the weekend. It talked about individuals being encouraged to cancel their membership at private members’ clubs, as “HMRC could use membership as evidence of strong ties to Britain”. This was to ensure non-residence for tax purposes.
One big issue – being a member of a private members club is not, and has never been, something taken into account under the UK’s Statutory Residency Test. Be a member of 10 or none, it is absolutely irrelevant. It would have been relevant under domicile rules, but those rules were abolished two weeks ago*.
If people are being encouraged to quit their private member clubs, it’s due to residency tiebreaker terms in Double Tax Treaties (Centre of Vital Interests). That has nothing to do with the UK’s tax residency rules. In order to need to consider these rules, you would have be UK resident anyway under our domestic law.
*Most of the UK’s Inheritance Tax Treaties (e.g with USA, India, France, etc.) are based on the concept of domicile, not residence. So technically domicile is still relevant in certain specific circumstances. It is also relevant in succession
Think tax avoidance is a modern concept? This house in Ambleside was built in the 17th century over a stream to avoid land tax. The tax was typically levied on buildings that occupied ‘land’, so by building the house over a stream, they avoided the requirement to pay it.
Unsurprisingly, no documentation exists regarding the actual intention of the Braithwaite family when they built it 400 years ago, but it seems likely it was built in this manner to avoid land tax. It would of course have been far cheaper to build on land in a normal manner. If you were going to do something for tax avoidance purposes, you wouldn’t document it as such anyway.
At the end of this month Stamp Duty Land Tax rates will increase. If purchasing a house for the median price of £268,000, Stamp Duty will be £2,500 more on a transaction that completes in April rather than March.
Stamp Duty was introduced in 1694 as a ‘temporary’ tax, meant to last for four years, to fund the Nine Years’ War against France. Other ‘temporary’ taxes introduced in the UK are:
1. Income Tax – intended to fund the Napoleonic Wars in 1799 and end when the war ended 2. VAT – intended to fund World War II as a ‘wartime measure’ 3. Pay As You Earn – also intended to fund World War II
As most economists will tell you, a ‘temporary’ tax is about as ‘temporary’ as the roadworks on the M1.
Slumdog Millionaire – a film adaptation of an Indian author’s book about a man from Mumbai winning an Indian gameshow. Filmed in India. 12 Years a Slave – a film based on a memoire of an American man, with screenplay written by an American, who was kidnapped from Washington DC and taken to New Orleans. Filmed almost entirely in Louisiana. Metro Manilla – a film based on a Filipino rice farm relocating to the to Philippine’s capital. Starring a Filipino actor and Filipino support. Filmed almost entirely in the Philippines.
The answer is, from a tax perspective, they are all “British” films.
Basically any film that qualifies as “British” gets up to a fifth of its budget paid for by the UK taxpayer via our Film Tax relief. Unsurprisingly, there is a big incentive to ensure a film is “British”.
So how do you assess whether a film is “British”? That’s where the British Film Institute comes in. They have an arbitrary (bizarre?) scoring system which ranks a film out of 35 for Britishness, with 18 needed to qualify as British*.
For example, up to 4 points are awarded if the film “demonstrates British creativity, British heritage and/or diversity”. Just 2 points are awarded if “At least 50% of the principal photography or SFX takes place in the UK”. But a massive 6 points are awarded if the “original dialogue is recorded mainly in English”.
The British film and TV industry is undoubtedly world leading, so could this be an example of a well targeted relief acting as intended? Or is it a relief that is being abused?
A friend of mine at Christmas told me they didn’t care about tax as they only paid it at 20%. After further investigation, they actually had a marginal tax rate of over 45%. Why?
Let say in April Alexander & Co has £1000 in the firm’s bank account that we want to pay as a bonus to one of our graduates. How much of that £1000 will end up in the graduate’s bank account, and how much will go in tax?
Firstly, we need to take off Employers’ NIC, which is rising to 15% on 6th April 2024. That’s £131 gone straight away, leaving a ‘pot’ of £869*. On this, the graduate will pay:
Income tax at 20% = £174
Employees’ NIC at 8% = £70
Student Loan repayment at 9% = £78**
Add those together with the Employers’ NIC and you get £453.
So of the £1000 cash in the firm’s bank account, our graduate will have just £547 going into their bank account. That’s a marginal tax rate of just over 45%***.
What are the below two pictures of? If you said ‘trainers’ and an action figure of a ‘human’, from a tax perspective you’d be wrong. You’re looking slippers and an action figure of a ‘mutant’.
Welcome to the wild world of ‘Tariff Engineering’.
Import tariffs are very different depending on the type of product. But what are the boundaries of one product category and the start of another – with potentially a lower tariff? And can the boundaries be manipulated?
In the first example, Converse (owned by Nike) put a patented* thin layer of felt on part of the sole of their Converse shoes which technically classifies them as slippers from an import duty perspective. In the US, slippers have a much lower import duty (<5%) than for wholly rubber sole shoes (30%-37.5%).
In the second example, action figures of ‘nonhuman creatures’ had import duties of 7% in the US, whereas those that represent humans had import duties of 12%. In Toy Biz v US (2003) Marvel argued that X-Men (and other Marvel characters) represented ‘mutants’/’superhuman’ characters with a lower tariff. The judge agreed, stating that the action figures ‘might well resemble a human being and not be one”. They went on to state that while they can “use their extraordinary and unnatural powers on the side of either good or evil,” they are nevertheless “something other than human.”
Other examples include:
1. Ford imported their Cargo Vans from Turkey with temporary rear seats and windows which were then removed in the US when they got through customs. This meant they were ‘passenger vehicles’ at 2.5% import duty, rather than the 25% import duty on Vans**. 2. Mercedes imported disassembled but fully completed vans to the US. They then assembled these in South Carolina. 3. Colombia Sportswear designs some of their women’s clothing with very small pockets just below the waist. Because of this, instead of paying 27% import duties they pay just 16%***.
Our Tax Director Rowan Morrow-McDade has been named by the ICAEW as the ninth most influential accountant in the UK on X (Twitter), up from 29th last year.
If you want to follow him on X, his handle is rowanmmcdade
There has been vitriol towards the ‘rich’ in the run up to the Autumn Budget, including encouragement for them to leave the UK. Example below – which I have edited to remove profanities.
From a tax perspective, should we care in the ‘rich’ leave?
An employee earning £30,000 which is just below the UK median salary will pay £3,486 in income tax in the 24/25 tax year.
An employee earning £120,000 will pay £39,432 in tax, which is over 𝟏𝟏 times more tax as the person on £30,000, despite earning four times as much income.
So there needs to be over 11 more people earning £30,000 to replace the income tax loss from one person on £120,000 leaving the UK*. Maybe we shouldn’t encourage the ‘rich’ to leave?
HMRC have since deleted the Tweet after I (and others) called them out on it directly.
If you pay National Insurance, you’re not ‘paying it forward’ for your State Pension. By the time you retire, any money you contribute this year will be long spent.
HMRC’s post appears to deliberately conflate private pension and NIC payments. The two are nothing alike.
If you contribute £10,000 into your private pension today, that is yours when you retire. If you pay £10,000 in National Insurance today it’s (as good as) completely unlinked to your state pension entitlement.
Don’t want to pay Capital Gains Tax, legally? You can – in some circumstances.
With CGT up to 24% from 20% and the Annual Exempt Amount reducing to a paltry £3,000 from £12,300 here are five ways to sell assets without Capital Gains Tax.
1. Anything with a useful life of under 50 years is exempt from CGT. So things like high-end watches, handbags, and (most) wines and spirits are exempt from CGT. This rule is why champion racehorses can be sold at huge gains without CGT. 2. Chattels sold for under £6,000 are exempt. For example, you can buy a gold bar, some jewellery or a piece of art for £2,000, then sell it for £5,500 and you’ll pay no Capital Gains Tax. 3. All gains on cars are exempt. (But this isn’t the Treasury being generous. Almost everyone makes a loss on their cars, and they don’t want you offsetting these losses against your gains.) 4. Spread betting is not taxable. If you bought Tesco Plc shares for £100,000 and sold for £150,000 you would pay tax on the £50,000 gain. Instead, if you spread bet the Tesco Plc shares 1:1 when you ‘sell’ in the above example you’d pay no tax at all. You also wouldn’t pay Stamp Duty on the initial ‘purchase’, as you’re not technically buying the shares. 5. UK Gilts (treasury stock) are exempt. For example, you can buy a 1/8% Treasury Gilt 2026 today for £95.55. When it matures on 30 January 2026, you will receive the face value of £100 back. The ‘gain’ of £4.45 per bond is free from CGT.
