It is easy to lump David Cameron in with Jimmy Carr, but to do so is dangerous, particularly now people are casting aspersions on mainstream tax planning vehicles like Isas
Let’s get the facts straight about David Cameron’s supposed tax misdeeds.
The prime minister invested just over £12,000 in an offshore investment fund in 2007 and sold his stake 13 years later for £31,500. He paid income tax on the dividend payments and he avoided paying capital gains tax only because the profit made fell within his and his wife’s personal allowance.
The only way that this fund could have reduced Mr Cameron’s tax bill was if its tax-free status in Panama essentially puffed up growth after reinvested dividends. However, with many UK funds also exempt from paying tax on dividends, it’s questionable as to whether the PM was better off by going offshore in the first place. Plus, the prospectus has made it clear that it hands out 85 per cent of its yearly profits as dividends, leaving very little to boost the fund itself.
Yes, the fund itself is only available to high net worth investors but curiously an exception was made for David Cameron, who invested a surprisingly modest amount. And in the end, he paid all the tax he legally owed without recourse to a ridiculously complicated and tortuous system.
However, the BBC satirical programme Have I Got News For You on Friday failed to make any distinction between Mr Cameron and Jimmy Carr, the comedian who was found to have invested in the complex and contrived K2 investment scheme, based in Jersey. By quoting Mr Cameron’s original criticism of Mr Carr back in 2012, it very clearly implied that DC was a big fat hypocrite.
While I am by no means a defender of ‘Call Me Dave’, this falsehood can’t be allowed to pass by without comment, particularly if it affects young people’s perceptions of legitimate tax planning.
Reports at the time suggested that Mr Carr had as much as £3 million stashed away in K2. Carr himself is easily worth 7 – 8 figures and it seems likely he used K2 to cover most of his income. Even conservative estimates would put his investment in K2 way above the the 12 grand invested by Mr Cameron in Blairmore.
Mr Carr accepted his salary in the form of loans to ensure that he slash his tax bill to the lowest possible level. The K2 scheme was so adept at manipulating our flawed tax system, it could reduce payable income tax to rates as low as 1 per cent.
By contrast, Mr Cameron paid the tax he legally owed without resorting to the opaque and fiddly techniques used by entitled celebrities and sleazy businessmen like Philip Green.
These are akin to the cheats you can get on a video game. If you played the game properly without cheats, you are subject to the normal rules of the game. You wouldn’t know about a secret cheat unless you got the right advice (and in the case of tax avoiders, at the right price). But once you got hold of them, they would artificially allow you to fly through the game without impediment. In essence, high rollers are flying through our tax system, taking advantage of HMRC’s inadequacies and inability to control how other countries decide their tax regimes, cheating us out of the billions they owe.
These methods are only understood by an elite tier of tax advisers that most of us can’t afford and exist outside the PAYE system which makes us pay our fair share.
The defenders of these schemes get away with their actions by saying they are legal, but these weasel words conceal the inherently immoral desire of their clients – to pay the absolute minimum they possibly can despite being the ones who can most afford it.
But let’s not confuse what these hoarders do with efficient tax planning, which is every citizen’s right. Indeed, it is their moral duty if they are to grow whatever they earn to lay down foundations for the future.
If they use mainstream, legal and universal methods to reduce their tax bill, they are not doing anything wrong. An Isa is not an affront to equality, like some commentators have suggested this week. If we start comparing a plain old vanilla Isa with a quixotic shady K2 investment fund, we undermine the whole notion of sound financial management.
If you think everyone should pay more tax, fair dos. You probably have an idealistic opposition to individuals looking out for themselves rather than putting the collective state first.
On the other hand, if you think you pay quite enough tax through the PAYE system, thank you very much, you would understandably praise the heavens above for any easily accessible account that helps you hold onto the precious funds you’re accumulating for the future. With all the challenges you face today and the already huge amount you give back to society, the least you deserve is to hold onto whatever small amounts you can save without Mr Taxman coming back for more.
Anyone who uses an Isa to save for a house, a baby, all the things that matter in life, should be proud to declare what they’re doing to the world. They’re responsible, they’re smart and they’re doing what’s right for them.
And that’s where David Cameron really went wrong. By remaining secretive about Blairmore, David Cameron gave ammunition to all those who signed up to shady secretive schemes, inadvertently putting himself in the same league as them.
But lazy HIGNFY scriptwriters need to know the difference. These shows have huge influence over young viewers, who may now start to equate all kinds of tax planning with deliberate tax avoidance.
If we start down that road, who knows what damage will be done?