Not all clients are looking for advisers to pursue ‘aggressive’ tax planning

Each family has its own individual needs and dynamics, and minimising tax is not always the primary driver, says Gillian Campbell

In the past decade, headline-grabbing cases have brought the issue of aggressive tax planning to the forefront of the public consciousness, raising awareness of tax avoidance schemes that had been available to the wealthy. Have attitudes towards tax planning and tax avoidance evolved as a result?

Firstly, it is important to clarify the terminology used when referring to the legalities of taxation. Tax planning is the legal process of arranging your financial affairs to maximise tax efficiency, such as saving for retirement or using tax allowances.

In contrast to tax evasion, tax avoidance complies with the law. The practice refers to taking advantage of legal ‘loopholes’ to reduce tax exposure. It is sometimes termed ‘aggressive’ tax planning. Tax evasion is an illegal activity in which a person or entity deliberately avoid spaying a tax liability.

Inheritance tax is often the first tax to spring to mind. Some view inheritance tax as a form of double taxation, taxing income that has already been subject to tax. Others believe wealthier individuals should pay their ‘fair share’ or see a progressive inheritance tax system as essential in preventing privilege being automatically transferred from one generation to the next.

In recent years, continued hikes in house prices with no relative increase in inheritance tax allowances have led to more people being affected by inheritance tax, which is payable in most circumstances on estates valued at or above the £325,000 threshold. this has had the effect of catching many more individuals and families, who wouldn’ t be regarded as particularly wealthy. HMRC raised £5.9 billion from this tax in 2021.

High-profile media coverage of the singer Gary Barlow and comedian Jimmy Carr’s tax affairs, in 2014 and 2012 respectively, shone a spotlight on the aggressive tax avoidance schemes which had been available to celebrities and other wealthy individuals.

Thegeneralanti-avoidancerule (GAAR), introduced in 2013, was designed to provide some clarity around what constitutes tax avoidance, what is acceptable and what is not.

The premise underlying the GAAR is that levying tax is the principal mechanism by which the state funds the services and facilities it provides for its citizens, and that all taxpayers should pay their fair share. The legislation focuses on what constitutes ‘reasonable behaviour’. This is a highly subjective concept to define.

Importantly, the GAAR rejected the former approach taken by the courts that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequencesmight differ from their real financial position. Those aggressive tax planning schemes previously offered to high net worth individuals, including celebrities who found themselves in the media spotlight, are no longer on the market.

As a trusted adviser to individuals and families, my role is to support clients with their succession aims. However, in advising these clients, I do not look purely at the financial landscape; each family has its own individual needs and dynamics, and minimising tax is not always the primary driver for a client needing advice.

For instance, a client may seek to set up a protective trust for a vulnerable beneficiary, or identify a solution to treat all their children fairly in the distribution of assets, where, for instance, one child has been more involved in the family business than their siblings. These are complex issues and although one has to consider the legal and tax position, the main thrust of such advice is always to meet the family’s individual aims.

For me, as a trusted adviser, complying with the tax rules is essential but the motivations behind tax planning vary from client to client.

Gillian Campbell is a Partner, Shepherd and Wedderburn