Panama Papers - Taxing times for entrepreneurs
Since the data leak of client information known as the Panama Papers, there has been much written in terms of what it means to hold money offshore.
There appears to be a few elements to this which mainly focus on whether or not it is moral to hold money in a place that has an low or non-existent tax rate. Many well known people, from government officials, politicians, sports stars and broad cross section of the independently wealthy can been found listed in the 11.5 million documents. The full scale of the fallout is yet to be known.
Now it is important to note that holding money offshore in many circumstances is not illegal, in fact there are many reasons why it can be entirely sensible.
However, we know live in an environment where data is valuable and where security of that data is becoming an increasing challenge. The public and consumers are increasingly focused on the ethics in business and companies are judged based on their decisions on matters such as tax. In fact consumers are increasingly becoming active in challenging morals and are voting with their feet.
Public companies are at the forefront of this, but it also represents a challenge for entrepreneurs of private companies who may be exiting their business in the near future or have recently had an exit.
What should an entrepreneur do before and after exit?
Once you have taken advantage of your entrepreneurs relief of 10% on the first £10m (available over the course of your lifetime), the net you will receive will be subject to the standard capital gains tax rate based on your income.
After that, the government only gives you a few incentives these days, mainly around charitable giving and investing in growth companies.
Any temptation to look to shelter funds offshore where there is no obvious good reason to hold funds there, is becoming ever more tenuous. Least of which is an investigation from HMRC.
It therefore strikes me that the best course of action for an entrepreneur is to plan ahead to make best use of the reliefs available and then stick to core onshore planning vehicles. Look to make best use of your capital to ensure you have the lifestyle you want and use some to put back in to society, through charity and social giving.
The cost, complexity and ultimately the risk of an unexpected outcome from overly complex planning would suggest that the best option is to KEEP IT SIMPLE.