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Penelope Wise Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract. Penelope blogs on investment and financial services around the world: mainstream and alternative. Contact: penny@lowtax.net
The mobile rang at six am as promised, so struggling past the thickets
of red roses and tasteless, glittering pink hearts cluttering up my hallway
(not!) I made it out of the door and through a light blizzard to join my friend
Julie in her Bentley. As we purred our way down the M4 to Heathrow, Julie explained
how she had come by the Scottish forest we were going to visit. A long story
involving pre-nups, gifts inter vivos, divorces and so on. Upshot, a tax-efficient
forest, which had been hers since the previous Wednesday, and she couldn't wait
to see it.
"In Invernesshire, in February?" I protested. Julie explained how
the gulf stream makes northern Scotland warmer than Devonshire, but I don't
think she believed it any more than I did. It took us all day to get to the hotel in Inverness,
so we had plenty of time to bone up on forestry with Julie's Blackberry. Lots
of countries have tax breaks for forests, it turns out: the UK, the US, Australia,
New Zealand, for instance.
It's the ultimate green tax shelter, you'd think? You buy land that has just
been planted with trees (or you can buy shares in a company that does so) and
thirty years later you or your descendants can sell it without paying capital
gains tax; and in some countries including the UK there are government grants
to pay for planting and upkeep.
The agent joined us for breakfast the next morning. Luckily for Julie, who
is Persian by origin and has problems with the accent of London cab-drivers,
never mind Robbie Burns sound-alikes, Hamish spoke perfect Oxford English. That's
true of much of northern Scotland, I found out later. Clambering into Hamish's
towering 4 x 4, and equipped by the hotel with vacuum flasks and sandwiches,
we set off through light snow towards the forest. The road was along a narrow
valley, in company with a railway track and a stream, the three of them constantly
intersecting, with road and railway now on one bank of the stream, now the other.
It was very picturesque, with the forested hills towering above us on either
side of the valley, more white than green. Occasionally the sun came out and
you could see the tops of the mountains, but most of the time they were lost
in swirling, snowy mists. I wished I was back in London, but Julie was on a
high.
"It's so beautiful," she kept saying.
After an hour or so, just at a railway station with an improbable name like Lochrothiepethray,
we turned off the highway and began the ascent to Julie's forest.
"If the snow was much worse we wouldn't be able to get there," said
Hamish helpfully. Eventually he stopped the car (tank) on a knoll and pointed
ahead to a vista of serried pines stretching in all directions, covering a series
of undulating hills. "You can see about half of it from here," he
said. "There is about 400 acres altogether."
The trees were in rows, the way the Forestry Commission usually does it, all
the same height, about fifteen feet, with occasional rides which break up the
monotonous effect to some extent. I could see from Julie's face that this blank
landscape didn't at all chime with her romantic imaginings of 'forest', some
amalgam of Hansel and Gretel, beech-woods in Surrey and horror movies set in
New England.
"Can we walk in it, a bit?" she asked rather uncertainly. So we did.
We walked up and down one of the rides in a couple of inches of snow, while
Hamish explained that the forest was about half-grown, and would be ready for
felling in fifteen years' time. "The trees will be thirty feet by then,"
he said encouragingly. 'Still all the same,' I could hear Julie thinking to
herself.
Blessedly soon, we were back in the tank, gliding down towards the station,
sucking for dear life on the coffee flasks, which the hotel had thoughtfully
fortified with local single malt.
"There's a problem," said Hamish suddenly, drawing to a halt in a lay-by at
the side of the road. "It's overheating. We're not going to make it back
to town. I'll have to call for help." There was no signal on the mobiles,
so in a tense silence we free-wheeled down the remaining couple of miles to
the station, just making it up a short incline to the station car park.
There was a signal again, now, so Hamish got to work on his phone.
"Maybe there's a train," ventured Julie. Hamish merely grunted, but
Julie and I went onto the platform and found a timetable. It was in very small
type, and hard to decipher, but we thought there should be a train in an hour's
time. At the bottom of the sheet, though, in large letters, was the emphatic announcement:
'UNLESS DIFFERENT'. That was the only time we laughed all day.
Hamish's friend, Malcolm, turned up before any train, in another cross-country
monster, and we were back at the hotel in time for lunch. Hamish and Malcolm
excused themselves: "We have to fix the jeep," they said.
The very next day, as it would happen, I saw a report in a tax newsletter
that an Australian academic had criticized forestry schemes for reducing the
land and water available to food growing, although this hardly seemed to apply to Julie's forest: 'Government assistance to forestry
and logging is equivalent to 42% of the industry’s unassisted value added;
tax-based subsidies through plantation managed investment schemes are estimated
to make up 77% of the assistance.'
So that's forests for you. Remote, boring, cold and not even green. Tax-efficient, of course. After that,
when Julie talked about her forest among friends, I could tell that she was
imagining her dream forest, not the daunting reality on that Scottish
mountainside.
Other recent entries in this blog:
13 December 2009 No Pensions, Please, We're British I don't myself have an income over GBP150,000 in the UK (or anywhere
else, for that matter), so this week's tightening up of the rules for pension
saving in the Chancellor's pre-budget report (aka election manifesto) doesn't
really affect me; but at all the dinner parties I went to since Wednesday (OK,
two of them) nobody talked about anything else but that, and the tax on bankers'
bonuses of course.
Since I try to be a financial journalist, obviously many of my
friends are in financial services, and most of them, boys and girls alike, tend
to be well into the range where they will be hit hard by the new 50% tax rate,
the increased national insurance contributions, and now the pension business.
Every time there is a tax increase, people always talk loosely about going to
Zurich, Dubai or Cyprus, and some of them do, especially if they're hedgies;
but this time there is a more meaningful tone to what they are saying. Taken
all together, someone on GBP175,000 and expecting a bonus of GBP100,000 (just
a middle range investment banker) will be paying out an extra GBP35,000 in tax
this year, and even that will cost their employer an extra GBP60,000.
The bonus tax is only short term, of course, and it's probably
fairly easy to get out of it one way or another, but the extra cost of pension
saving is long term. Then, once you have saved, you're trapped by HMRC rules
in low-yielding investments, plus who knows what the rate of UK tax will be
when you finally receive your pension? The national books are in such a mess
that it will be fifteen years before taxes can come down again. One crumb of
comfort for my friends (Tories, every one of them) is that 'we' will be in power
again in the summer - perhaps! 'We' will then have to work hard for ten years
to claw our way back to prosperity, and our reward will be that the electorate
will then bring back the socialists to spend the money we have saved!
Since Labour came back in, they have systematically attacked the
pensions savings system, beginning with Gordon Brown's infamous decision in
1997 to scrap tax relief on pension fund dividends. Altogether, the socialists
have 'raided' pensions savings by in excess of GBP10bn a year since 1997, which
amounts by today to a total lost by pension schemes of at least GBP200bn, representing
more than double that amount in eventual lump sum benefits. And what has the
money been spent on?
So this time it's for real, say my friends. It won't happen in
a blaze of publicity, because that attracts the unwelcome attentions of HMRC,
but little by little, one by one, companies and individuals will move to less
offensive tax regimes. And in the meantime, people will - should - save into
such funds as are permitted under SIPPs rules and which they will one day be
happy to have as investments when they no longer live in the UK.
There is no way out of HMRC rules as long as you remain a resident,
of course. If you want the benefit of not paying tax on the income you put into
your pension, then you have to accept the rules, and it is only after you have
been non-resident for at least five years that you may be able to use the QROPS
mechanism to transfer your pension assets into a more favourable regime which
will not compel you to invest in over-priced annuities. For younger people,
it may make more sense to bypass the system altogether from the beginning: if
you know that you are leaving eventually, and if you have spare cash, it may
be more logical to invest in high-yielding overseas assets regardless of the
tax saving. But be careful! All the people who saw their Dubai apartments as
some kind of substitute for boring old UK fund investments, including several
of my friends, are now regretting it big time.
Ah, the problems of having money! Luckily they pass me by.
22 November 2009 The Ex-Wives' Charter, Norwegian Style In Cyprus recently for a family occasion, I met up for drinks with a Norwegian
girl-friend. Although it was only just lunchtime, Dolly was clearly somewhat
the worse for wear – this is what happens to all too many expats, of course,
not enough to do and too much spare dosh – and I've never seen her so
excited. "The swine," she said, and I knew she must have been referring
to her ex-husband, Knut, always known to everyone as 'Nuts' (don't ask), "He's
done me in big-time. Look at this!"
She thrust a copy of the local expat rag under my nose from two weeks before,
and the second lead was a story about the Norwegian taxpayers list. I had noticed
it myself in the British newspapers, but not having any Norwegian ex-husbands
I hadn't really stopped over it. In Norway each year the tax authority publishes
a list of how much tax everyone has paid, and from that you can work out something
at least of how much they're worth, although it only includes Norwegian income.
Two drinks later, after Dolly had calmed down a bit and stopped cursing out
Nuts, I got her to tell me what had happened. Nuts, who is a fairly successful
ship-owner, had returned to Norway to live in 2008 after the Norwegians improved
their tonnage tax (shipping tax) regime. He had been living with Dolly in Cyprus
for twenty years or so, where there is also a very good shipping taxation regime.
They were rather tired of each other, and they agreed in a fairly civilized
way to get divorced so that Nuts could marry his Swedish mistress. Dolly had
known about her for years. There was a hearing in Cyprus, property division
etc, and the Court ordered Nuts to pay Dolly 20% of his declared average income
to Dolly for life. Since he had declared income of 800,000 euros, and that didn't
seem unreasonable to Dolly, she accepted. EUR160,000 a year isn't exactly starvation
wages for doing nothing.
"This arrived today," said Dolly, shoving another piece of paper
across the table and knocking over her drink in the process. She was still quite
excited! By the time the waiter had cleared up the mess and we had got Dolly
another drink, the piece of paper was sodden and hardly legible any more, but
I could see that it was a document from the Norwegian tax authority, the Skatteetaten.
"But it's in Norwegian," I pointed out. "Oh yes, of course,"
said Dolly in that way of hers that makes you feel stupid, "Well, can't
you see the figure? Look!" She jabbed at the paper. And indeed I could
just about make out a figure with a lot of noughts after it. "It's forty
million," said Dolly triumphantly. "Krone of course. That's almost
five million euros. That's the tax he paid, so it means his income must be at
least double that. That's just in Norway. And he told the court he didn't have
any income in Norway!"
Dolly was working herself up into a righteous fury, so I tried pointing out
that maybe he had sold some shares, or a ship, and this was capital gains tax,
but she wasn't listening. She stormed off eventually towards her lawyer's office,
but it's hard to see what she can achieve except to pay a lot more fees and
get nothing.
After she left I sat over my drink, pondering the Norwegian system. Hardly
any other country does it, although in many countries, if you are in a public
position you are either expected to disclose your tax affairs, or in some cases
they are publicly available. Transparency is all the rage, nowadays, but the
Norwegian full monty seems to be going a bit too far. Or is it? Despite all
of the TIEAs being signed left, right and centre, and for all of the G20's grey,
black and for all I know purple lists, it's still not that difficult for a resourceful
and especially a rich and well-advised person to hide their international assets
and income flows. How fair is that on fellow taxpayers and ex-wives?
When it comes to public companies, which seek investment from joe public, the
situation is different, of course. They publish annual reports, which by law
have full details of income, expenses and taxation, along with lots of other
stuff. In most countries, the annual reports of even private companies are in
the public domain as well, although you have to pay to see them.
Why should individuals be different from companies? In the long term –
the very long term – the pressure for individuals to be fiscally transparent
as well will be too great to resist. This will happen because richer people
will always seek to live in and be taxed in lower-taxing jurisdictions, and
the day will come when the cash-strapped, high-taxing countries will club together
in a G40 or G60 or G99 to make the lower-taxing 'offshore' countries open up
their books. Once an individual's global fiscal affairs are captured on the
all-inclusive and public data-base that will then exist, secrecy will truly
have gone. You will still be able to live in Jersey and commute as a non-resident
to the House of Lords two days a week; but the days of pleading poverty to your
ex-wife will be over.
Penelope Wise
Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.
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