Is minimising your tax bill a bad thing?
I read with interest yesterday morning a post by my friend Paul Clarke. It was vehement in its anger towards the messaging used by a wealth management company in its direct mailing to him.
The mailing was encouraging him to work within the law to minimise the tax that might be payable on his estate should he die.
The post, together with a subsequent email discussion with another friend, prompted some thoughts of my own on the subject—which are shared here.
There are two axes at work here. (Axes of the horizontal and vertical variety, as opposed to their sharp, woodcutting namesakes.) These are: what is legal; and what is morally right.
Although the legal axis might be argued as being binary, my view is that there are levels of breaking the law, particularly in the world of financial crime. The severity of crime committed, the level to which it is committed and the intent behind the crime all play into this. A small business owner who forgets to return their VAT return is technically committing a crime, but is arguably less of a criminal than Bernard Madoff.
As for the moral angle, this is open to debate. Many would argue that operating within the law to protect money that they have built up over the course of their life is morally defensible. I’m not quite sure whether Paul has an issue with this premise, or whether his issue is with the barefaced marketing encouraging him to do so.
Likewise, many would argue that small business owners paying themselves dividends in addition to salaries to reduce the overall levels of tax paid passes some level of moral judgment. After all, they’re hard-working small business owners, helping to keep the economy afloat.
Yet some of those very same people are outraged when the likes of Barclays and Vodafone also operate within the bounds of the law to minimise the size of their own respective cheques to HMRC.
Paul’s stance (which I’ve extrapolated from his post) is admirable: if you save your relatives a tax bill by pre-emptively protecting your estate from the taxman, you reduce the funding of public services, which is a bad thing.
But just as with voting, people will see their own contribution as trivial in the grand scheme of things. If HMRC’s annual tax take was represented by an Olympic-size swimming pool, then a teaspoon of water would equate to £1,032.34. So a £10,000 tax saving equates to a double spirit shot; a £100,000 saving being a little over a pint. Who’ll notice if I take a pint of water out of the swimming pool? And who’ll notice if I take £100,000 out of HMRC’s tax take?
And I think it’s this force that’s at play here. Assuming people think this deeply, the thought is that the benefit that the extra money can bring to their family is immeasurably greater than the tiny benefit that can be brought when the money is diluted in helping the rest of the country.
Maybe the opposite ends of this decision represent the true difference between conservatism and liberalism. Although I for one see myself as relatively liberal yet I can see myself managing my finances in line with the premise outlined by the wealth management company mentioned above.
Does that make me a bad person?