Half of IFAs “morally wrong” in Prime Minister’s eyes
Successive governments have changed the goalposts so often that what it is safe to advise a client to do is no longer clear.
IFAs who advise clients on tax avoidance schemes are on thin ice, according to industry experts, who believe the threat of retrospective changes to the law is too big an issue to ignore.
The issue hit the headlines after comic Jimmy Carr was pilloried in the press for using a Jersey-based scheme to avoid paying income tax.
According to the latest FE Trustnet
poll, almost half of IFAs believe that "operating within the law" is enough when it comes to advising clients about their tax affairs.
However, a host of experts have warned that in the current regulatory and social climate, perfectly legal tax avoidance schemes could be attacked by the authorities in the future, adding to the complexity of the decision on how to advise.
Chris Spear (pictured left)
, managing director of Spear Financial Services, said: "I’ve been in the industry for a couple of decades and I have used tax avoidance products in the past, but I wouldn’t do so again."
"The reason is the changing attitude and legislation of the Government."
"It started when Gordon Brown moved against double-trust arrangements. It was the first time the Government had used retrospective tax changes, so people realised that you can use tax dodges now but it’s not over until it’s over."
AWD Chase de Vere’s Patrick Connolly added: "Investors who want to push the boundaries are taking a huge chance that what they are doing may be legal now but may not be acceptable in the future."
Juliet Schooling-Latter (pictured right)
, head of research at Chelsea Financial Services, thinks for many people the threat of public disgrace may be more of a deterrent than any legal repercussions.
"I think people are more worried that they will be the next to be named and shamed rather than whether what they’re doing is immoral," she said.
Of the 283 investment professionals who responded to the poll, 52 per cent said advisers should be guided by morality when advising clients, while 48 per cent said following the law is enough. There was a similar result in a poll of private investors, which had a 53/47 split.
"I have come round to the view that you must always play it straight and play it simple," continued Spear.
"There are some things you can do that aren’t very controversial, not from a moral point of view but from the point of view of your client being able to sleep at night without worrying about retrospective law changes in the future."
"If clients come to me with a scheme that seems legal but I can’t see all the risks, I would always get them to sign a disclaimer and make it clear they are taking responsibility."
said: "As a starting point the adviser has to be within the law."
"That said, in all circumstances, the advice should be tailored to the requirements and the wishes of the client, so at one extreme they will be very ethical, but at the other extreme there will be clients who are willing to be more adventurous in terms of risk."
"Advisers usually should be urging them away from risk, but if the client is clear about what he wants to do and the risks are explained to them, they have responsibility."
"Most people try to be too clever and perhaps Jimmy Carr did that too," he added.
Schooling-Latter added: "It was harsh for Jimmy Carr in the press, I felt sorry for him. He was doing what a lot of other people were doing."
"If you ask the average man in the street if they want to pay more tax they would obviously say no. Having said that, it was obviously wrong that he was paying so little."
"I think the fact that people are thinking about this now means people are very aware they have a moral responsibility to pay a reasonable level of tax. Investors need to be aware of the public mood."