Peter McGahan: The stars that have fallen unnecessarily through tax advice

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There have been several well-documented situations where a high-profile individual’s tax planning has come under scrutiny and the results have been unfavorable.

Some readers have asked if their income and estate tax planning trusts are the right or wrong side of the earnings.

Much comes from the publicity surrounding the mistakes of high-profile individuals. Many of these have agents who often appoint the individual’s financial adviser, and in such complex financial matters plans may be suggested by an “adviser” intent on impressing those far beyond “close-hauled”.

In 2016, Lionel Messi was sentenced to 21 months in prison for tax evasion when his advisers used offshore companies to protect his image rights earnings. The sentence was then replaced by a fine, as was the case with his fathers.

In 2019, Cristiano Ronaldo was fined €19m in a similar scenario after the court ruled that he had used an offshore company in the Virgin Islands to hide his image rights earnings. The deal agreed with the authorities spared a prison sentence.

Jose Mourinho was also sentenced to a year in prison for hiding image rights revenue in corporate structures in New Zealand, Ireland and the Virgin Islands. In June, Samuel Eto’o pleaded guilty to tax fraud for hiding image rights in Barcelona and of course the talented Neymar was also prosecuted.

The issue is of course the hiding of image rights revenue, and an issue that would have been known to the above consultants.

Boris Becker’s recent jail sentence was different, but his defense’s statement that he had literally nothing left of his fortune was tough reading.

He was declared bankrupt in 2017, but the court heard he had a history of knowingly hiding assets. Last week, following a tax investigation, Bernie Ecclestone was charged with fraud involving £400million in offshore assets.

The list could go on for some time. In reality, however, the situation is not as bad as it is portrayed. In the scenarios above, the individuals were very young, inexperienced, and took the advice of an agent and consultant. They would see no reason to question what is being set before them. Eto’s agent was also sentenced to prison.

When looking at tax avoidance or why taxes are not paid, the numbers are interesting. In the UK in 2019-2020, simple mistakes accounted for 146 per cent more unpaid taxes than actual tax avoidance. Neglect of due diligence (the biggest problem), interpretation of the law, and criminal attacks were all at least 250 percent greater problems than avoidance alone.

The problem that has plagued the financial world in the past has been tax avoidance schemes. In an attempt to mitigate income tax or inheritance or inheritance taxes, tax organizations concocted schemes that simply would never work.

As always, the simplest litmus test is: “What is the motivation behind the program?”

If it’s tax avoidance, they’ll find out. If the mitigating tax is within the applicable law, it is mitigating and perfectly normal and legal.

This is why some go to extreme lengths to avoid taxes when the actual rules for mitigation are actually quite simple and therefore most people will not pay excessive taxes if they take the advice of a professional adviser.

The problem with marketed tax avoidance schemes is high on the agenda of tax authorities, who are striving to drive promoters out of the market altogether. In addition, the IRS actively seeks out individuals using the programs and trains them to exit quickly.

Whether it’s capital gains tax, inheritance tax, or income tax, there are myriad generous rules that allow a navigation to reduce your tax for your family, so you pay what’s due to you and only what’s due to you.

Always consult with an independent financial adviser, qualified solicitor and accountant known to someone you trust. You will be aware of all potential options that are safe and tested over time.

Peter McGahan is Chief Executive of independent financial advisor Worldwide Financial Planning, which is authorized and regulated by the Financial Conduct Authority. If you have a financial question call Darren McKeever on 028 6863 2692, email [email protected] or visit wwfp.net

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