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Thousands Of Investors Flock To Buy-To-Let As Boom Returns
Tens of thousands of investors have joined Britain’s biggest investment “club” in the hunt for cheap buy-to-let properties. Thousands are signing up to the “club” each month, and half already own a buy-to-let property Photo: keith morris / Alamy Britain’s biggest property investment “club” – it prefers to call itself a provider of specialist services to private property investors – has doubled its membership in 12 months. Assetz, founded by entrepreneur Stuart Law, said it now has 65,000 “live” investor members, up from 35,000 a year ago. Members register for free and then receive emails alerting them to potential property opportunities, which include, the firm claims, “highly discounted newbuild stock and resale buy-to-let properties, up to 50pc off 2007 prices” and offering “typically 8pc yields”. Thousands are signing up each month and half already own a buy-to-let and are looking to add to their holdings, Mr Law said. “They are cash-rich and ready to invest further.” This may sound reminiscent of the buy-to-let hysteria gripping Britain in 2006 and 2007 but Mr Law said it’s different – with today’s investors more focused on generating income, not quick capital growth. There is other evidence of growing landlord activity, such as increased lending and lettings agency business. HM Revenue & Customs is also upping its game to ensure tax is properly collected from the sector. Last week it announced a clampdown through which it will try to recover an estimated £500m per year of unpaid tax due on landlord’s rental income. HMRC believes up to 1.5million landlords may be failing to pay taxes due. Continue reading
Steering Clear Of The GAAR With Legitimate Tax Planning
29 August 2013 Advisers are crucial to legitimate tax planning for clients who are confused by the GAAR, says Andy Gadd. Tax avoidance and tax evasion have been hot topics in the press recently, with companies such as Starbucks, Amazon and Google hitting the headlines after appearing before Margaret Hodge and her public accounts committee. A very important piece of legislation relating to tax avoidance and tax evasion recently received Royal Assent and that is the general anti-abuse rule which is contained in the 2013 Finance Bill. Rather than considering tax avoidance or evasion, the GAAR legislation defines what are, for its purposes, tax arrangements that are abusive. The GAAR rejects the approach taken by the courts in a number of historical cases to the effect 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 consequences might diverge from the real economic position. The GAAR guidance gives examples of this such as Ayrshire Pullman Motor Services and Ritchie v Inland Revenue Commissioners (1929) and Inland Revenue Commissioners v The Duke of Westminster (1936).) The guidance explains that with reference to cases such as Ayrshire and the judgement by Lord Clyde, Parliament – in enacting the GAAR legislation – has taken the position that taxation is not a “game” where taxpayers can indulge in any ingenious scheme in order to eliminate or reduce tax liability. With the operation of the GAAR, Parliament has imposed an overriding statutory limit on the extent to which taxpayers can go in trying to reduce their tax bill. The limit is reached when the arrangements put in place by the taxpayer to achieve that purpose go beyond anything which could “reasonably be regarded as a reasonable course of action.” The primary policy objective of the GAAR is to deter taxpayers from entering in to abusive arrangements and to deter would-be promoters from promoting such arrangements. If they are not abusive they are not in the scope of the GAAR. HMRC also launched a consultation paper entitled, Raising The Stakes on Tax Avoidance, on 12 August. This focuses on tax avoidance and suggests new proposals which HMRC believes will make it significantly harder to market tax avoidance schemes in the first place. These proposals include identifying publicly “high-risk” promoters of avoidance schemes, isolating them from mainstream advisers, using information powers to get early information about their products and making it clear to their customers who they are dealing with. Legitimate tax planning In many circumstances there are various different courses of action that a taxpayer can quite legitimately choose between. The GAAR is carefully constructed to include a number of safeguards that any reasonable choice of action is kept outside the target of the GAAR. For example, a taxpayer may decide to invest in an Isa to take advantage of the tax benefits of doing so or might give away assets to a son or daughter without retaining benefit in the gifted asset, with a view to reducing the amount of inheritance tax payable on their estate. Or they might invest in an enterprise investment scheme or venture capital trust to benefit from the investment opportunity while at the same time receiving various tax benefits. Always remembering not to let the tax tail wag the investment dog. Unfortunately, experience has shown the Government that tax incentives and reliefs can be abused. Where taxpayers set out to exploit some loophole in the tax laws by entering in to contrived arrangements to obtain a relief but incurring no equivalent economic risk, then they will bring themselves in to the target area of the GAAR. I think it worth highlighting at this point that many of the established rules of international taxation are set out in double taxation treaties. These cover, for example, the attribution of profits to branches or between group companies of multi-national enterprises, and the allocation of taxing rights to the different states where such enterprises operate. The mere fact that arrangements benefit from these rules does not mean that the arrangements amount to abuse, so the GAAR cannot be applied to them. Accordingly, many cases of the sort which have generated a great deal of media and Parliamentary debate in the months leading up to the enactment of the GAAR cannot be dealt with by the GAAR. However, where there are abusive arrangements which try to exploit particular provisions in a double tax treaty, or the way in which such provisions interact with other provisions of UK tax law, then the GAAR can be applied to counteract the abusive arrangements. Operation of the GAAR It is important to appreciate that the GAAR is designed to counteract the tax advantage which the abusive arrangements would otherwise achieve in the absence of the GAAR achieve. This means that it will usually be necessary to determine whether the arrangements would achieve their tax avoiding purpose under the rest of the tax code – the non-GAAR tax rules – before considering whether the arrangements are “abusive” within the meaning of the GAAR. However, there may be some arrangements which appear to be so blatantly abusive that it would be appropriate for HMRC to invoke the GAAR without first completing the exercise of determining whether the arrangements would achieve their intended tax result under the rest of the tax rules. It is therefore not possible for a taxpayer to object to the use of the GAAR simply because all other means available to HMRC to tackle what it considers an abusive arrangement have not been utilised. There may be cases where abusive schemes would succeed in the absence of the GAAR, which is the very reason why the GAAR has been introduced. There may also be arrangements which cannot be described as “abusive”, but which nonetheless HMRC regards as seeking to achieve some tax advantage and as falling outside the range of acceptable tax planning. The fact that the GAAR would be inapplicable in those situations does not inhibit HMRC’s right to challenge such cases, relying where appropriate on other parts of the tax code applied in accordance with the legal principles developed by the courts in recent years. The GAAR applies to tax arrangements which are abusive In broad terms the GAAR only comes in to operation when the course of action taken by the taxpayer aims to achieve a favourable tax result that Parliament did not anticipate when it introduced the tax rules in question and, critically, where that course of action cannot reasonably be regarded as reasonable. To ensure that, in effect, the taxpayer is given the benefit of any reasonable doubt when determining whether arrangements are abusive, a number of safeguards are built into the GAAR rules. These include: Requiring HMRC to establish that the arrangements are abusive, so that it is not up to the taxpayer to show that the arrangements are non-abusive. Applying a double reasonableness test. This requires HMRC to show that the arrangements “cannot reasonably be regarded as a reasonable course of action”. This recognises that there are some arrangements which some people would regard as a reasonable course of action while others would not. The double reasonableness test sets a high threshold by asking whether it would be reasonable to hold the view that the arrangement was a reasonable course of action. The arrangement falls to be treated as abusive only if it would not be reasonable to hold such a view. Requiring HMRC to obtain the opinion of an independent advisory panel as to whether an arrangement constituted a reasonable course of action, before they can proceed to apply the GAAR. When is a tax arrangement abusive? There are a number of key elements in this provision: The concept of a reasonable course of action in relation to the relevant tax provisions; Comparing the substantive results of the arrangements with the principles on which the relevant tax provisions are based, and with the policy objectives of those provisions; Seeing whether there are contrived or abnormal steps; Seeing whether the arrangements are intended to exploit any shortcomings in the relevant provisions; and The double reasonableness test – whether the arrangements cannot reasonably be regarded as a reasonable course of action. The GAAR recognises that some parts of the tax legislation reflect a clear policy of providing tax relief or other specified outcomes for certain courses of action – for example, to invest in pension scheme. So reasonable steps taken to achieve the outcomes envisaged by those rules, or to prevent benefits under those rules from being inappropriately denied, will be a reasonable course of action in relation to those rules. It is possible that there could be a reasonably held view that the tax arrangements were a reasonable course of action, and also a reasonably held view that the arrangement is not a reasonable course of action. In such circumstances the tax arrangements will not be abusive for the purposes of the GAAR. But it is important to note that some person’s view that the tax arrangements are a reasonable course of action, whether the view of a QC, an accountant, solicitor or anyone else, will not inevitably lead to the conclusion that the arrangement is not abusive. It will be necessary to test that view to see whether that view itself can be regarded as reasonable, having regard to the purposes of the GAAR legislation and the factors that it requires to be taken into consideration. The double reasonableness test is the crux of the GAAR test. It does not ask whether entering in to or carrying out the arrangements was a reasonable course of action in relation to the relevant tax provisions. Instead it asks whether there can be a reasonably held view that entering in to or carrying out the tax arrangements in question was a reasonable course of action. Just and reasonable counteraction It could be the case that the taxpayer might have carried out any one of several alternative non-abusive transactions to achieve the same non-tax purpose if the abusive one had not been carried out. In this scenario the just and reasonable counteraction would be to select the transaction which a taxpayer would most likely carry out in such circumstances and to adjust the tax consequences on the basis that this alternative transaction had been carried out. It is important to note that the most likely alternative transaction would not necessarily be the one which would result in the highest tax charge. GAAR penalties The GAAR legislation does not include any specific provisions imposing or dealing with penalties. However, under the general principles of self-assessment, a taxpayer has a duty to submit a correct tax return. Accordingly, if it would be “reasonable” for a taxpayer to believe that he or she has entered in to an abusive arrangement that would be counteracted by the GAAR, then the self-assessment return must make an appropriate adjustment to reflect the fact that the GAAR would be applicable. Failure to do so could leave the taxpayer open to penalties for failing to take reasonable care in completing the tax return. In practical terms this means that it is possible for penalties to be imposed for breach of the self-assessment requirements in cases where a taxpayer has completed the self-assessment return on the basis that a tax-avoiding arrangement has succeeded in reducing the tax bill, when it should have been obvious that the arrangement was abusive and would be caught by the GAAR. The challenge for IFAs It is crucial to highlight the need to keep in mind the premise underlying the GAAR and the recent consultation paper from HMRC, which rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means. The GAAR now compares the substantive results of arrangements with the principles on which the relevant tax provisions are based, and with the policy objectives of those provisions. It means that there is a new way of legislating that will have a profound and far-reaching effect, as HMRC has confirmed it is adopting the FCA principle of an outcomes-based approach to abusive tax planning. The challenge for IFAs is that the publicity surrounding tax avoidance means that there has been, in the minds of certain clients at least, a blurring of what might potentially be done in terms of tax planning. Consequently, there is a possibility of clients not taking up the opportunity to use perfectly legitimate structures, permitted by legislation including the GAAR, to avoid taxes either now or in the future. In terms of legitimate tax planning and tax avoidance, my view is that the professional financial adviser has never been more important. Andy Gadd is head of research at the Lighthouse Group Continue reading
Lib Dem Conference: Vince Cable’s Speech – Full Text
The Spectator 16 September 2013 Friends. It is a special pleasure to speak to Conference in the city where I had my political baptism of fire. Glasgow is a great city and Glaswegians are warm, hospitable and humorous. But Glasgow has experienced one party, Labour, rule for decades. And I was part of the Labour political machine here in the 1970s. On one level it worked. Insanitary slums were razed to the ground. We built 30,000 new social homes for rent in a decade – 5,000 in one year, a scale unimaginable today. There was also an unhealthy tribalism and a Tammany Hall political machine in which union bosses had excessive influence in picking candidates and deciding policy. Judging by Falkirk, and other Labour fiefdoms, nothing very much has changed. That is one major reason why we must not concede to Labour the mantle of radical progressive politics. We must assert our party’s ownership of that tradition, which in Scotland runs for over a century: from Asquith, Gladstone and Campbell-Bannerman through to Jo Grimond, David Steel, Charles Kennedy, Bob McLennan, Ming Campbell, Jim Wallace and many others. The challenge today is to reinforce that Liberal tradition which is at risk of being compromised by working with what, on Clydeside, are called ‘the hated Tories’. And that’s when people are being polite. Like you, I’ve spent most of my political life fighting against those ‘hated Tories’. But despite that I believe that it was both brave and absolutely right for the party, under Nick Clegg’s leadership, to work with the Tories in an economic emergency, in the UK national interest. Theresa May once described the Tories, a decade ago, as the Nasty Party. After a few years trying to be nice and inclusive it has reverted to type: dog whistle politics, orchestrated by an Australian Rottweiler. Hostility towards organised labour, people on benefits and immigrant minorities. The list of people the Tories disapprove of is even longer: public sector workers, especially teachers; the unmarried; people who don’t own property. Their core demographic excludes pretty much anybody who wouldn’t have qualified for the vote before the 1867 Reform Act. These prejudices can perhaps be explained, in part, by their age profile. I suspect I would qualify – on age, not ideology – to be a member of the Young Conservatives. But I think the other reason is deeper: a cynical calculation in difficult times that fear trumps hope; that competence requires callousness. That is not our kind of politics. It is ugly. And we will not be dragged down by it. That is why our Liberal Democrat message about Fairness is key. We can legitimately claim ownership of fair tax policies which have lifted millions of low earners out of income tax. It is our policy. Don’t let the Tories steal it. I can remember in opposition bringing this proposal to conference, at a time when George Osborne’s top priority was cutting inheritance tax for millionaires. And our commitment to taxing unproductive wealth – valuable property – through a Mansion Tax, is economically sensible and popular; but above all, fair. Don’t let Labour steal that either. Fairness takes us so far – but in my view not far enough. We are not just a nicer version of the Tories. There are fundamental differences about how to create a stronger economy and more jobs. We are five years on from the biggest market failure of our lifetime. Financial capitalism collapsed and was rescued by the state. Labour was in charge and had fallen asleep at the wheel. They were negligent. The Tories’ friends and donors were at the heart of the greed and recklessness which lay behind that disaster. Today they yearn to return to ‘business as usual’. Whilst we work with them, pragmatically and constructively, to clean up the mess, we must not allow them to turn the clock back. In essence, the Tories have a simple world view; private good, public bad. Labour offers the polar opposite. As Liberal Democrats we value both public and private sectors. I support private business, big and small. I also support mutual and employee ownership. And even Tony Benn couldn’t claim to have launched two state-owned banks; the Green Investment Bank – based in Edinburgh- which we promised three years ago has already committed £685 million to green projects. And the Business Bank, which I launched at Conference exactly a year ago is now mobilising private capital to support new banks, local banks and non bank finance. It is the key to stopping the suffocation of good small business by the big banks. By contrast, the Conservatives’ spiritual home is in the United States. They have become the Tea Party Tories. They want to throw overboard any tax or regulation which gets in the way of their blinkered small state ideology. Deep down they believe that there is no alternative to unhindered individual self-interest; that attempts to tackle big disparities of income and wealth takes us down the road to socialist serfdom. Our rejection of dogma also leads us to an eclectic mixture of markets and regulation. In government we are rightly getting rid of the red tape which throttles small business and holds back entrepreneurs. But some regulation is essential. And that is why I work – with Ed Davey and colleagues – to resist Tory pressure to emasculate environmental regulation, as in their ludicrous war on windmills. That is also why we have seen off demands from a Tory donor to make it possible to fire people for no reason whatsoever. Let no one tell you that Liberal Democrats have not made a difference. Without us in government, we would be ruled by people who think the problem with this country is that workers have too much job security. Instead, I will act against abusive practices in zero hours contracts, like exclusivity arrangements which prevent workers seeking alternatives, even when they are given no work. I have secured agreement in government to launch a formal consultation on the best mechanism to tackle abuse. We have had to take some tough and necessary economic decisions with the Tories. There is of course common ground on the need to cut the budget’s structural deficit and promote private enterprise. There are welcome signs of returning confidence. But let us not be carried away, and let’s not get sucked into a petty point scoring, Labour-Tory Punch and Judy show on the economy. It took many years of mistakes to create the financial crisis. It has taken five years to start to dig our way out. We mustn’t now settle for a short term spurt of growth, fuelled by old-fashioned property boom and bankers rediscovering their mojo. We have seen it all before and there are already amber lights flashing to warn us of history repeating itself. The Prime Minister says I am a Jeremiah. But you will recall from your reading of the Old Testament that Jeremiah was right. He warned that Jerusalem would be overrun by the armies of Nebuchadnezzar. In my own Book of Lamentations I described how Gordon Brown’s New Jerusalem was overrun by an army of estate agents, property speculators and bankers. The problem we have now is that the invaders are coming back. They have a bridgehead in London and the south east of England. They must be stopped. Instead we need sustainable growth. That involves rebalancing the economy across the UK in favour of exports and investment – the central purpose of our government’s industrial strategy. We should celebrate the success stories of motor vehicles and aerospace, the creative industries and educational exports and the partnership between government and business in all of these sectors. Manufacturing is coming back through rebuilt supply chains. We are attacking the country’s scandalous neglect of skills through our successful relaunching of large scale apprenticeships. We have given priority to Britain’s world class science and have created a chain of innovation centres – the catapults – of which there are two in Glasgow, promoting new, business-led, technologies for advanced manufacturing and new offshore renewables. We are building a genuine cross-party consensus around these government interventions so that they endure. But, make absolutely no mistake, without Liberal Democrats they would not have happened. But if sustainable recovery is to be achieved, we must meet the enormous challenge of house building. Demand growth has been outstripping supply, driving up both rents and prices. Property is simply unaffordable for families without big incomes or access to the bank of mum and dad. Yet we are nowhere near recapturing the house building drive which pulled Britain out of the slump in the 1930s. Barely 100,000 homes a year are being completed, a quarter of what was being achieved in the 1960s. In addition, two million social homes have been sold since Mrs Thatcher began in 1979and no less than three quarter of a million of them were sold under Labour. Hence the enormous pressure on families trapped by a lethal combination of low pay, rising rents and tighter benefit rules. The priority right now is increasing housing supply through private and public sectors. Conference took a strong step forward this morning with the proposal to give councils greater borrowing capacity to get on and build social housing. The country desperately needs delivery of homes not dogmatic arguments over tenure. I hoped that we would find common ground with the Tories at least in one area: supporting an open, outward looking country. Indeed we said with one voice: Britain is open for business. Sadly, that message has changed. Brazilian and other students who would bring economic and wider benefits to British universities are being told they are burdensome immigrants so they go to the United States instead. Many Chinese tourists and businessmen are so fed up with the hassle and humiliation involved in trying to visit Britain to invest here that they are taking their money to Germany and France. What they hear is that we are closed for business. That must change. Moreover, our status as a popular destination for job-creating investment from Japan, the USA and mainland Europe could be compromised by careless talk from some of my cabinet colleagues – let alone the backbench Bones and Hollobones – about Britain leaving the European Union and the Single Market. Britain’s future in the European Single Market is being put at risk by the Tories. Yet millions of British jobs depend on our protecting that relationship. Let’s remember that we voted to join the present Coalition. We did not vote to join a coalition with UKIP. Of course, the Tories are frightened by the public reaction to overseas workers. But there is something deeply opportunistic about people who lecture our workers, and the rest of Europe, about the need for free and flexible labour markets, but then squawk with panic when those free and flexible labour markets bring in foreign workers. The politics of identity is toxic, and difficult. At times of hardship, those outside the elite of rich and powerful tend to blame outsiders. But we need to address the underlying problem. At present most workers’ pay is being squeezed in real terms. This has averted an unemployment disaster in the short term. But there is no long-term future in Britain being a low pay, low productivity economy. We cannot just wave a magic wand and make the problem go away but we can be more ambitious in showing the way forward. I have asked the Low Pay Commission to advise how we might achieve a higher minimum wage without damaging employment. The deeper lesson is that business has to be responsible as well as profitable. Three years ago at Conference I said in my speech that we must shine a bright light in the dark corners of capitalism. I thought I was paraphrasing Adam Smith, the sage of the Scottish Enlightenment; but much of the press thought that Karl Marx had risen from his grave in Highgate cemetery to join the Coalition Government. That was before either the Libor or hacking scandals broke; and the revelation of industrial scale tax avoidance by prominent companies. Trust was very badly damaged. Responsible capitalism is, actually, what sensible business wants. And I have worked with business amongst other things to achieve binding shareholder votes on executive pay; to make real progress in getting women properly represented on company boards and getting institutional investors to think longer term. Jo Swinson and I have a lot more work to do to advance family-friendly working and to establish an open register of who owns companies, to help curb tax dodging. And I am preparing to legislate to make it easier to prosecute and ban rogue directors who repeatedly walk away from their debts and their customers. We Liberal Democrats see business as a partner not an adversary in creating responsible capitalism. I’d like to end, as I began, in Glasgow. There is a stretch of the Maryhill Road in the north of the city that connects the ward I once represented with the constituency Jo now represents in parliament. One thing has not changed in all those years. Despite the efforts of different governments in the UK and Scotland there is an enormous gulf – as Jo said in her opening speech, seven years of life expectancy – between the prosperous and educated at one end and a seriously deprived community at the other. I want our party to be arguing for the unity of the United Kingdom. But unity is not just about Scotland and England. It is also about north and south. Public and private. Rich and poor. In our tribally divided politics, the country badly needs the one party that can bridge these dangerous divides. This isn’t just a matter of splitting the difference between other parties’ policies but setting out a clear and distinctive vision. The country needs a party which is competent in office but also committed to fighting prejudice and entrenched privilege. We are that party. Tags: Lib Dem conference 2013 , Speeches , Vince Cable Continue reading
