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T is for Taxes – The Elite Investor Club’s A – Z Guide of Investing


Welcome back to the A to Z of investing. Today I’m adopting a serious tone as we cover the only aspect of investing to be frequently mentioned in the same breath as death. Because we’ve reached the letter T and T is for Taxes. There are few more emotive topics than tax. I usually get slaughtered on social media when I say that my starting point is that all tax is theft. Think about what it is and how its collected. It is the forced confiscation of money from its citizens by the state to fund projects that the state regards as more important than the things you were planning to spend the money on. Yes of course we need to pay for schools, roads and hospitals. But do we need hundreds of thousands of civil servants on gold plated, unfunded pensions to administer these services? Do we need to give billions to IT and management consultancy firms so that can fail to deliver new systems to streamline these services? What about George Osborne’s scandalous and deliberate attempt to call tax avoidance the same thing as tax evasion, and to deliberately scapegoat some high profile celebs like Jimmy Carr and Gary Barlow? There is no such thing as tax avoidance. There is only tax planning, which is the legitimate minimising of your tax bill within the law, and tax evasion. Are you aware of the truly scary powers Osborne has given to HMRC to pursue those that they believe may be evading or ‘aggressively avoiding’ tax? They can now seize money from your personal or company bank account or your ISA without going through any legal process. If they’re not sure whether a scheme you’ve invested in is legitimate, they can make you pay all the tax up front as if they’d won the case before it ever gets to court. They, with their bottomless pockets filled with money confiscated from other taxpayers, take you to court and only if you match their spending and eventually win the case will you get the confiscated money back! That’s like sending the prisoner to the electric chair before the murder trial has begun. What ever happened to Magna Carta and the right of the citizen to proper legal process. Here’s what barrister Francis Hoare has to say on the subject: ‘The proposal itself is objectionable in principle. The greatest legacy of the Magna Carta is the principle that the executive is subject to the law as much as the people, and yet the direct recovery legislation places the Crown in a superior position to individuals and businesses in its rights to enforce debts. It denies access to the courts for the resolution of disputed tax liability before property is frozen, and delays a judicial remedy for an indeterminate period. Most dangerously of all, it treats individual property as the property of the state once the state has determined it so’ No, I’m not talking about North Korea or Zimbabwe. I’m talking about North Sheen and Northampton. This is now happening across the UK and thousands of ordinary folk like you and I are being bullied by HMRC without any recourse to the law. Happy days. As an investor, there are still a few areas where tax allowances can make a difference, notably pensions and ISas. Of the two, my preference is ISAs. There’s no tax relief when you put money in, currently just over fifteen thousand a year. But there is tax relief when you take money out. Unless you’re a complete moron the money should be worth a lot more on the way out than when you make the first investment. With pensions the relief is mainly on the contributions when you make them. Each year the amount you can hold in your pension gets reduced and the amount you can contribute has been decimated. I expect the twenty five per cent tax free lump sum to disappear soon and the lifetime allowance means that you’ll never even match the average income from what you’re allowed to have in the scheme. So you need assets in your pension to maximise the tax allowances but you’ll also need assets outside your pension if you want a decent lifestyle in later years. For more adventurous investors there are excellent tax reliefs available on the EIS and Seed EIS schemes that I don’t have time to cover here. One last warning. Don’t let the tax tail wag the investment dog. Sometimes the products offered within tax wrappers perform very poorly. Make sure you retain choice over the assets you hold in your ISA or pension and watch them like a hawk. Great performance is sweetened by tax relief. But tax relief will never be enough to recover from lousy investment returns. Taxes are only going one way in the near future. Make sure you’re a member of Elite Investor Club so we can keep you informed of how to respond as the threat to our liberty continues to grow.