Tax avoidance and tax planning are two separate issues!

As the UK government continues its quest to grab upwards of £500 million in overdue taxes on undeclared overseas bank accounts, the subjects of tax avoidance and tax planning are in the headlines. While many people may be slightly confused as to the difference between tax avoidance and tax planning there are many subtle and important differences which need to be addressed.

Tax avoidance is ultimately the process of “hiding” undeclared income and undeclared wealth, whether this is overseas or in the UK. The bottom line is that tax avoidance is illegal and is the deliberate process of avoiding paying tax while tax planning is the process of protecting your wealth using current tax legislation to reduce your tax obligations as much as possible.

While there is no doubt that some of the tax planning schemes which have been used in the UK in the past, and today, sail very close to the wind with regards to legality. However, if the UK government is unsure whether a tax scheme is covered by the regulations it has been known to change the rules literally overnight. The current UK government has been one of the more aggressive operators of late with regards to tax avoidance schemes and continues to chase taxes with a ferocity rarely seen in political circles – although up until now this was limited to the UK and not overseas tax havens.