9 ms·

I lived for four years in the IoM, had an amazing time (until Bushy's closed anyway). But in the process, I opened an IoM bank account to pay my salary into. I

I lived for four years in the IoM, had an amazing time (until Bushy's closed anyway). But in the process, I opened an IoM bank account to pay my salary into. I carried on using this account for years afterwards (it was with the IoM branch of a UK bank). I benefited from not paying any tax on the interest on my savings account, because tax haven. Not a huge perk, but a nice one anyway. And then, in the wake of the tax haven scandals around 2005/6, the HMRC wrote me a nice letter explaining that, while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years. The final bill came to about fifty quid, so no major damage done. But the lesson has stuck with me. HMRC can and will change the rules at any time, and apply them retroactively. Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun.

lawlessone 7y ago
>The final bill came to about fifty quid, I'm thinking you weren't really who they wanted to target anyway.
- marcus_holmes 7y ago
  indeed :) But still a good lesson.
- nikanj 7y ago
  Sometimes it feels like the taxman is very keen on targeting Joe Ordinary who saved fifty quid, and completely ignoring the billionaires who evaded tens of millions in taxes.
  - VBprogrammer 7y ago
    At a guess this might not be far from the truth. For sub a few hundred pound almost no one would bother fighting it. Above a few hundred thousand almost everyone will. At best they'd have to expend a lot of time and money to get a fraction of the original amount back.
    - marcus_holmes 7y ago
      My wealthy great aunt paid an accountant to minimise her tax bill. She said it worked out around even, the costs of the accountant were about what she saved on the taxes, but she preferred paying the accountant than the government.
      - yrro 7y ago
        Of course, 20% of what she paid the accountant goes straight to the government in the form of VAT. Then, 20% of what's left goes again when the accountant spends any of it (ok, some thing are zero-rated [books] but on the other hand others have extra duties on top [fuel])... Then there's the accountant's own tax bill...
      - benj111 7y ago
        "but she preferred paying the accountant" Why? At the extreme, would she have preferred to pay 100% to accountants rather than the government? If everyone took that view, who would pay for the schools and roads etc? I suppose that wouldn't happen, the tax rate would be increased, so everyone's paying tax and a massive accountants bill, so really the rational move is to pay the tax.
        markkanof 7y ago
        There are a lot of things that government spends taxes on that many of us don't agree with. Better to spend that money employing someone providing a useful service than contributing to fund things that you find immoral, such as fighting unjust wars.
        marcus_holmes 7y ago
        this. exactly. She'd lived through WWII, been bombed by the Luftwaffe, operated one of the first radar stations, and had firm opinions on governments.
  - andrepd 7y ago
    Of course, who do you think pays the taxman? Who writes the laws or has power, influence, and money to shape them? It's not an accident, it's by design.
  - tomatocracy 7y ago
    It might feel like that but fortunately it isn’t true. People and companies who earn above a certain amount get a ‘relationship manager’ at HMRC and also get classified as low/medium/high compliance risk by them. I think there are rules they consider ‘intended loopholes’ (like the fact that you can designate a different house your main residence every 9 months and effectively benefit from two primary residence allowances for CGT, or the ability to transfer assets between spouses tax free), many of which benefit richer people/larger companies more than poorer/smaller ones, and others they consider ‘unintended consequences’ which they do go after in a number of ways - all the way through to effectively retrospective changes to the law (like the Loan Charge).
  - mercer 7y ago
    https://news.ycombinator.com/item?id=21181664 https://news.ycombinator.com/item?id=21181664
peteretep 7y ago
> Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun. Sure. However, getting slightly smart about it, and not -- for example -- paying tax in a country you are demonstrably not living in, is probably a good idea.
- simonh 7y ago
  Unless you’re an American living abroad, in which case it’s tax evasion.
  - peteretep 7y ago
    For that, there's FEIE, and moving your residence to Puerto Rico
    - ModernCannabist 7y ago
      Can you elaborate on that?
      - ceejayoz 7y ago
        Puerto Rican residents don't pay federal income taxes (unless they work for the federal government). https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico
      - simonebrunozzi 7y ago
        Foreign Earned Income Exclusion [0]. [0]: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore...
    - smn1234 7y ago
      please expand
    - jermaustin1 7y ago
rahimnathwani 7y ago
What rules were they retroactively changing? If you're resident in the UK, you have to pay tax on all interest income, and this isn't new. Were you not living in the UK during the period? BTW HMRC doesn't make/change the rules, although they do interpret and enforce them.
pmjordan 7y ago
while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years. Are you sure they changed the rules? It sounds like they might have realised they hadn't been implementing/enforcing the European Union Savings Directive (EUSD) [1] correctly, and therefore retroactively enforced the rules. Or perhaps they found that the EU rules overrode the UK/IM rules, which were retroactively found to be null and void. [1] https://en.wikipedia.org/wiki/Savings_Directive https://en.wikipedia.org/wiki/Savings_Directive
- marcus_holmes 7y ago
  does it matter? there were some rules, that I was obeying, then there were some other rules, that were retroactively enforced. From my point of view, same same ;)
  - sokoloff 7y ago
    Yes, I think it does matter. It's arbitrary and capricious if HMRC can change the rules and retroactively apply them. It's totally reasonable (absent a statute of limitations lapse) IMO for them to go back and retroactively enforce rules that you weren't following once they detect that. (I would even entertain that it would be unreasonable for them to not do so.)
    - deleted 7y ago
      [deleted]
    - marcus_holmes 7y ago
      not from my point of view. I don't know all the tax rules (no-one does, not even a specialist tax consultant or a HMRC employee). The different between a rule that isn't enforced and not-a-rule is meaningless. The difference between a rule that isn't enforced and a rule that no-one is aware of is meaningless. Like I said, I obeyed all the rules, and then one was retroactively applied. It really doesn't matter whether the rule existed before or not. And yes, all tax authorities are capricious. The stories I heard about the ATO in Australia make the HMRC look like a model of predictable reliability.

lawlessone 7y ago

>The final bill came to about fifty quid, I'm thinking you weren't really who they wanted to target anyway.

marcus_holmes 7y ago
indeed :) But still a good lesson.
nikanj 7y ago
Sometimes it feels like the taxman is very keen on targeting Joe Ordinary who saved fifty quid, and completely ignoring the billionaires who evaded tens of millions in taxes.
- VBprogrammer 7y ago
  At a guess this might not be far from the truth. For sub a few hundred pound almost no one would bother fighting it. Above a few hundred thousand almost everyone will. At best they'd have to expend a lot of time and money to get a fraction of the original amount back.
  - marcus_holmes 7y ago
    My wealthy great aunt paid an accountant to minimise her tax bill. She said it worked out around even, the costs of the accountant were about what she saved on the taxes, but she preferred paying the accountant than the government.
    - yrro 7y ago
      Of course, 20% of what she paid the accountant goes straight to the government in the form of VAT. Then, 20% of what's left goes again when the accountant spends any of it (ok, some thing are zero-rated [books] but on the other hand others have extra duties on top [fuel])... Then there's the accountant's own tax bill...
    - benj111 7y ago
      "but she preferred paying the accountant" Why? At the extreme, would she have preferred to pay 100% to accountants rather than the government? If everyone took that view, who would pay for the schools and roads etc? I suppose that wouldn't happen, the tax rate would be increased, so everyone's paying tax and a massive accountants bill, so really the rational move is to pay the tax.
      - markkanof 7y ago
        There are a lot of things that government spends taxes on that many of us don't agree with. Better to spend that money employing someone providing a useful service than contributing to fund things that you find immoral, such as fighting unjust wars.
        marcus_holmes 7y ago
        this. exactly. She'd lived through WWII, been bombed by the Luftwaffe, operated one of the first radar stations, and had firm opinions on governments.
- andrepd 7y ago
  Of course, who do you think pays the taxman? Who writes the laws or has power, influence, and money to shape them? It's not an accident, it's by design.
- tomatocracy 7y ago
  It might feel like that but fortunately it isn’t true. People and companies who earn above a certain amount get a ‘relationship manager’ at HMRC and also get classified as low/medium/high compliance risk by them. I think there are rules they consider ‘intended loopholes’ (like the fact that you can designate a different house your main residence every 9 months and effectively benefit from two primary residence allowances for CGT, or the ability to transfer assets between spouses tax free), many of which benefit richer people/larger companies more than poorer/smaller ones, and others they consider ‘unintended consequences’ which they do go after in a number of ways - all the way through to effectively retrospective changes to the law (like the Loan Charge).
- mercer 7y ago
  https://news.ycombinator.com/item?id=21181664 https://news.ycombinator.com/item?id=21181664

peteretep 7y ago

> Getting super smart about taxes, especially by using loopholes and tax havens, can be counter-productive. Unexpected tax demands are not fun. Sure. However, getting slightly smart about it, and not -- for example -- paying tax in a country you are demonstrably not living in, is probably a good idea.

simonh 7y ago
Unless you’re an American living abroad, in which case it’s tax evasion.
- peteretep 7y ago
  For that, there's FEIE, and moving your residence to Puerto Rico
  - ModernCannabist 7y ago
    Can you elaborate on that?
    - ceejayoz 7y ago
      Puerto Rican residents don't pay federal income taxes (unless they work for the federal government). https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico https://en.wikipedia.org/wiki/Taxation_in_Puerto_Rico
    - simonebrunozzi 7y ago
      Foreign Earned Income Exclusion [0]. [0]: https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore...
  - smn1234 7y ago
    please expand
  - jermaustin1 7y ago

rahimnathwani 7y ago

What rules were they retroactively changing? If you're resident in the UK, you have to pay tax on all interest income, and this isn't new. Were you not living in the UK during the period? BTW HMRC doesn't make/change the rules, although they do interpret and enforce them.

pmjordan 7y ago

while I had obeyed all the rules at the time, they were retroactively changing the rules and I needed to declare all the interest I had earned on my offshore account over the last 8 years. Are you sure they changed the rules? It sounds like they might have realised they hadn't been implementing/enforcing the European Union Savings Directive (EUSD) [1] correctly, and therefore retroactively enforced the rules. Or perhaps they found that the EU rules overrode the UK/IM rules, which were retroactively found to be null and void. [1] https://en.wikipedia.org/wiki/Savings_Directive https://en.wikipedia.org/wiki/Savings_Directive

marcus_holmes 7y ago
does it matter? there were some rules, that I was obeying, then there were some other rules, that were retroactively enforced. From my point of view, same same ;)
- sokoloff 7y ago
  Yes, I think it does matter. It's arbitrary and capricious if HMRC can change the rules and retroactively apply them. It's totally reasonable (absent a statute of limitations lapse) IMO for them to go back and retroactively enforce rules that you weren't following once they detect that. (I would even entertain that it would be unreasonable for them to not do so.)
  - deleted 7y ago
    [deleted]
  - marcus_holmes 7y ago
    not from my point of view. I don't know all the tax rules (no-one does, not even a specialist tax consultant or a HMRC employee). The different between a rule that isn't enforced and not-a-rule is meaningless. The difference between a rule that isn't enforced and a rule that no-one is aware of is meaningless. Like I said, I obeyed all the rules, and then one was retroactively applied. It really doesn't matter whether the rule existed before or not. And yes, all tax authorities are capricious. The stories I heard about the ATO in Australia make the HMRC look like a model of predictable reliability.