This blogger does not normally comment on matters relating to tax planning, because although he has multiple appropriate professional qualifications and a lifetime of experience, he would have to admit to being a bit rusty on the rules and regulations!
However, developing media coverage of a firm called Oxford Capital which made what may have been some very adventurous investments in unlisted businesses, some of which appear to have gone pear shaped, prompts me to remind readers not to let ‘the tax tail wag the dog’ as the saying goes.
Financial advisers often look to gain tax planning advantages for clients by investing in portfolios of unlisted company shares (or even individual businesses) where the Government has offered various exemptions to attract risk capital to new ventures.
Two problems usually arise: the investors who are looking to save tax may actually be relatively risk adverse and secondly, the flood of money from tax planning schemes results in the purchase of shares in what might be called ‘daft’ or even contrived busineses. By contrived, I mean set up to match the rules of the tax concession, not to actually develop any new ideas or products.
I recall one 31st March driving late evening past a hilltop in my then home county of Dorset and noticing it was a hive of floodlit activity. I later learned there was a race to finish a solar panel battery by the end of that month so it qualified for specific tax subsidies. It was said that workers had been brought in from Russia to put in the necessary hours!
That really makes the point that operators of schemes, who often take large cuts in fees and commissions, will push the boundaries and not look too hard at what the underlying investments are. Apart from the ethical questions about maximising tax relief for the already rich by claiming subsidies from the general tax budget, such advisers risk losing their clients’ money and possibly even their clients’ reputations.
If you are offered an investment in a ‘safe’ portfolio of unlisted companies, check out what those companies actually do and get a second expert opinion.
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