Should we tax the ‘rich’ more?

Tax! A hated necessity, we recognise the need for it, but we have serious disagreements over who should pick up the tab and to what extent.

According to the IFS, the top 1% of earners in the UK pay more than a third of the UK’s total income tax, and who are the top 1%? They are those who earn at least £160,000 per year as a national average of the 1%, but in London the top 1% are those who earn more than £300,000 per year. And if you’re earning more than £70,000 per year, you’re amongst the top 5% who pay 50% of all income tax.

Does that mean 95% of the rest of the population pay the other half? No. In fact half of the population are exempt from making payments due to changes in policy such as increasing the personal allowance at a rate faster than inflation. The people who are being squeezed to fund an ever more costly UK are those on the cusp of being a higher rate taxpayer and higher/top rate taxpayers.

Higher earners are being taxed more than ever before in ever more ingenious ways which include:

  • Tapered removal of the personal allowance as income exceeds £100,000 (this causes the 60% tax, more on that later!)
  • Cuts in income tax relief for pension contributions
  • Reduction in the lifetime allowance
  • Tax on accumulated savings and investments already paid for with taxed income, only to be taxed again by way of further taxes such as capital gains tax or inheritance tax

The irony is that most of the above changes have happened under a Conservative government.

The key question is whether the tax burden on the wealthiest members of our society is a fair one. At this stage, I honestly don’t know the answer to that but it doesn’t feel fair to seemingly penalise geeks at school who opted to study, or an entrepreneur who was willing to take risks, and work 100hr weeks to build a business that goes on to provide valuable services and create new jobs. It’s also not fair that wealthier individuals fund an NHS that they are unlikely to use as they can afford to pay for private health care.

But then again if the other 95% of the population didn’t exist, the top 5% most likely wouldn’t enjoy the income that they currently receive, as it’s only because the other 95% buy or consume the products and services of the top 5% that they can command the income they do.

It’s also wrong to assume the wealthier simply work harder, lots of students work hard and lots of low-income families work incredibly hard but their income doesn’t reflect the economic contribution they make to society by simply being hardworking decent human beings who raise their families well by teaching them good values. What I believe many low-income families lack, is the opportunity to learn new skills in order to increase their income and improve their livelihoods. That lack of opportunity is not merely because of unaffordable course fees but constraints on their economic development through no fault of their own but only their circumstance.

The point I’m trying to make is good citizenship offers serious economic benefits for all as there’s less reliance on public services be it the NHS, Police or social security which should mean a healthier society, confident in the security provided with more disposable income to spend on what the wealthy have to offer. Therefore, it makes sense if the wealthy seek to be as successful as they intend to be, they need to invest in developing a healthy market.

But of course, based on the above statistics they probably have a disproportionate burden, and to risk taxing them any further, would be to risk losing an English speaking internationally mobile British educated professional to a more favourable tax jurisdiction. And when I say the ‘wealthy’, don’t think of CEOs and Directors of companies listed on the stock exchange but rather and more accurately think of talented teachers, doctors, dentists and small business owners among that category.

Ok, does that then mean we need to tax the 95% more than we are? No. They can’t afford it, and doing so, could literally cause hardworking low-income families to collapse which would also have unintended negative economic consequences. So, what’s the answer? Heaven knows and I’m pretty sure neither Boris nor Corbyn have a practical and equitable solution either. But I have some reflections which I’ll share in another piece.

Should you like to explore your circumstances please use the contact form below or book a call via the calendly widget below.

Mohammad Uz-Zaman is a private client trust and estate planning consultant who holds accreditations across regulated financial advice and estate planning. He holds graduate and post-graduate degrees and he is also an associate member of the Society of Trusts and Estate Practitioners (STEP). He works closely with financial advisers, general practice solicitors, accountants and investment managers from several major practices.

DECLARATION OF TRUST (DoTs) – Smart Tax Planning

First off, a declaration of trust is not a trust, it’s more like a declaration of facts. Although it is a legal arrangement for tax planning purposes. Funnily enough, because it’s a legal arrangement, some accountants may not know about it and because it’s a tax planning tool, solicitors may also not be aware of it.

Here are some ways a DoT can be very useful:

1. Income tax mitigation on investment properties

Should you and your spouse own investment property, generally the solicitor would have structured it on a ‘tenants in common’ basis. This means the equity and thus the rental yield would need to be split on a 50:50 basis.

If you are a higher rate or top rate taxpayer, your portion of the rental income, which is 50%, would be taxed at 40-45%.

If your spouse is lower rate taxpayer, their share of the rental income benefits from a lower rate of income tax, and of course if they were a full-time homemaker it’s unlikely they would pay any tax on the rental income at all as they would have their personal allowances to set against any rental income.

A DoT can be used to declare that 99% (or any other percentage) of the rental income should be for the beneficial interest of the lower rate taxpayer. This now means 99% of the rent is taxed at the lower rate, which could save you thousands.

What to watch out for?

If you sell the property, while a DoT is in place, 99% of the equity in the property is also in the estate of your spouse.

If your spouse dies, 99% of the equity will be in their estate for probate purposes.

If you divorce, 99% of the equity in the property will also be in your ex-spouses estate.

Will a DoT work for non-spouse joint owners?

It may not be tax efficient as there is likely to be capital gains tax implications on giving up equity to the non-spouse.

2. Confirming real ownership of the property

If you are buying a property with a partner, then at outset especially if you are both unmarried to each other, you can put in place a DoT which will reflect the proportionate ownership of the property based on the contribution each of you has made to the property. This will be crucial if you ever separate.

3. Making a lifetime gift

Where one person owns a property in their own name. They can add the other spouse on a DoT stating they own the property equally. Both parties now gift the property (most likely to their children) and this allows two lots of annual allowances to be used for CGT purposes. As it’s considered a potentially exempt transfer for inheritance tax purposes they also benefit from both of their inheritance tax nil rate band.

What’s a potentially exempt transfer?

You’d think if you gifted something there’d be no tax to pay. It’s not so simple. In fact, it’s considered a potentially exempt transfer. A period of 7 years must pass before that gift is completely outside your estate. Should you die within this 7-year period that gift can be brought back into your estate for the calculation of any inheritance tax charge.

The case for inheritance tax – for and against

Jean-Baptiste Colbert, France’s celebrated 17th century finance minister under King Louis XIV, famously said the following: “The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.” Or, to put it more bluntly, a successful tax should earn the government plenty of money whilst causing as little aggravation as possible to the people paying it.

Those who argue against the levying of inheritance tax (IHT) may or may not be aware of Colbert’s quote, but it’s very likely that they’ll agree with it. Opponents of IHT often say that it actually brings in a very small amount of money, an argument the statistics appear to back up: whilst annual receipts exceeded £5 billion for the first time earlier this year thanks to the boom in house prices, this only amounted to 0.25% of GDP. For the amount of ‘hissing’ the tax causes, is it really worth it for such a small percentage of the government’s revenue? Those against IHT would say not.

In contrast, those who support IHT come at the issue from a different angle. Whilst the revenue percentage may be small, IHT still earns the government a sizeable amount of money which would need to come from elsewhere if it were abolished. Getting rid of IHT could therefore lead to greater taxation elsewhere, preventing people from being able to enjoy their hard-earned money during their lifetime. The existence of IHT can also be seen as a potential stimulant for the economy: if people know that tax will be paid at 40% on any money they leave behind, they’ll be more likely to spend it whilst they’re still alive.

Tax: How does it affect me?

The UK tax system is complex and ever-changing. It therefore, stands to reason that having a good idea of the taxes that may fall upon you is a wise idea to ensure your financial security. We know that tax is one of the areas many of us struggle to understand and so we have prepared a brief explanation of how this certainty in life may affect you.

Knowledge is power.

When it comes to taxes, knowing the basic information about the different areas which affect you will ensure you are not only contributing fairly to the tax system but also protect your finances in the best way possible. Increasingly, the responsibility lies with the individual to ensure they are abiding correctly by tax requirements – meaning no longer can we rely upon this to be arranged for us.

Knowing where to begin can be tricky. That’s why we have explained some of the most common areas of tax confusion and how you can avoid being caught out.


Your annual income is the biggest and most common area of your financial affairs to be taxed. As an employee, or as a business owner, your personal income will be taxed at a rate to contribute to the UK economy. Whilst it’s easy to see this as losing your hard-earned money, taxation is both necessary and inevitable for a healthy society.

In most cases, we contribute from our salary is straight forward. However, if you earn a yearly income over £150,000, then this is where the complications can come in.  If you earn more than this threshold then you can expect to see your tax rate jump to 45%.  Your personal tax-free allowance is currently £11,000, can also be reduced by £1 for every £2 you earn over £100,000 – which effectively means you’re paying a marginal tax rate of 60%. Being aware of these rules can mean it makes sense to try to reduce your income below the thresholds. This can be done changing your income stream to a non-taxable channel – for instance by deferring your earnings, moving income to a legal spouse or making charity payments instead.

Salary sacrifice in exchange for less tax.

Employer schemes that allow workers to exchange their money for tax- free incentives are becoming increasingly popular. Often referred to as salary sacrifice schemes, you can receive benefits, discounts or share options. Investigating what’s on offer for you can be a wise move and help you to spread other costs and reduce your tax bill. Employees who exchange part of their salary will have a reduced income but may also receive tax-free pension contributions and therefore make savings for the future at the same time.

Company cars.

A perk of the job, your company car may not strictly be yours but the tax upon it can still fall with you.  The Co2 emissions on your car will dictate the amount of tax owed and can rise by each year at 1%. It therefore, makes sense to review your usage of your company car and consider using your own car for business. Many employers allow you to claim tax-free mileage which may make more sense for you. Some employers do offer fuel for private use but it may be better for you to have this reimbursed to your employer rather than paying a fuel scale charge.


The rate of tax on your dividend income – for example, that which is not invested in an ISA or similar scheme – can be upto 38.1% for top rate tax-payers. Moving your income around may be a wise idea or even deferring may help you reach the nil rate band and therefore be more effective. In these circumstances, seeking professional financial advice is a sound investment to ensure you are being taxed in the most efficient way for you.

Investments and returns.

Any investments or assets that you have can also be taxed – so don’t think that these are exempt.  Reviewing these and considering moving funds can be a good idea to keep your capital at the lowest possible tax rate. You could also consider rearranging your investments to achieve a tax-efficient return. Keep in the mind the income tax rate of 45%.

Surprised to learn about some of these rules? No doubt you are not the only one.  Taxation is an area that can be increasingly confusing, the more that you earn. Sometimes we take employee benefits and incentives for granted and without due consideration…it’s completely normal, actually anything else is abnormal, but a bit of abnormality can go some way in optimising your tax affairs.

Disclaimer: The information contained within this article are provided as illustrative purposes only based on legislation at the time of publication. Nothing in this article should be construed as advice or guidance to one’s personal situation. The value of your investments may go up and down, similarly, other aspects of your wider lifestyle and financial context may impact on your objective. In a nutshell, don’t rely on blogs and the articles for personal advice, and always seek advice from a qualified professional.

The Only Certainties in Life? Death and Taxes.

Understanding what will happen to your money when you have died, is something that we all need to think about. As is often said: you can’t take it with you when you are gone. Unfortunately – dying and taxes remain the two things you can really expect, so for that reason alone, now is the time to think about how you or your children may be affected.

For many of us, inheritance tax is bit of a mystery and understandably so – it is perhaps something we would rather not think about. But getting your finances in order whilst you are fit and healthy will be the best thing you can do for your family in the event of your death.

Why do we have Inheritance Tax?

Inheritance Tax is never going to be popular – most of us feel that we have spent our lives working hard and being taxed and therefore should be able to leave our assets and savings to our family without losing any to fund others or the State. However, Inheritance Tax has been around for a long time and doesn’t show any real sign of going away, despite the promise of each Government to change it. Whilst it may have once been justified more easily as the wealthy were an exception, nowadays more and more people have worked and accumulated considerable savings and assets. For now though, Inheritance Tax looks here to stay and as such, the best thing we can all do is ensure we are managing our assets as efficiently as possible.

The details – in brief.

Inheritance Tax was once something that only the really wealthy had to think about. However, nowadays, most families will be liable for Inheritance Tax on some level, due mainly to rising property prices and changing legislation.

When you die, it is usual for most of us to wish to leave our finance and assets to our family members or friends.  By arranging your affairs now, you can be sure to pass your money and property on in the most efficient way possible and without losing more than is really necessary.

To date, if your estate is worth more than £325,000 your assets could be eligible for Inheritance Tax. This means that your wealth above this figure could be subject to 40% deduction before being passed on to your children. Married couples can combine their nil rate band to reach a £650,000 threshold but with rising property prices this is often easily breached.

However, changes coming into effect in April 2017 will see a family home allowance introduced which will be added to the existing tax-free allowance. This will mean that those who have no considerable assets other than the family home, will be able to pass the property to their children without fear of a huge cut in inheritance tax or losing their home altogether. Good news? Yes – but your remaining assets could still be eligible and your property can only be left to your direct family.

Sound complicated?

That’s because it is. Inheritance Tax is a very complex area which most of us would rather not become familiar with.


Disclaimer: The information contained within this article are provided as illustrative purposes only based on legislation at the time of publication. Nothing in this article should be construed as advice or guidance to one’s personal situation. The value of your investments may go up and down, similarly, other aspects of your wider lifestyle and financial context may impact on your objective. In a nutshell, don’t rely on blogs and the articles for personal advice, and always seek advice from a qualified professional.