Tuesday, 19 February 2013

Tax avoidance and Tax evasion

These subjects have been made relevant from  Spanish and UK Budgets in the past few years where  part of the Governments’ increased revenue will come from tackling Tax Avoidance and Tax Evasion. One of the problems I have with the subject is that in speeches politicians often confuse tax avoidance with tax evasion. Many journalists and broadcasters might also like to learn too. There is no such thing as Avoision !


  • Avoidance and evasion are not the same

  • Tax avoidance is legal

  • Tax evasion is illegal

Tax Evasion – Definition

Unlawful attempt to minimise tax liability through fraudulent techniques to circumvent or frustrate tax laws, such as deliberate under-statement of taxable income or wilful non-payment of due taxes.

Whereas tax evasion is an offense (punishable by both civil and criminal penalties), tax avoidance is not.

Whatever politicians or the newspapers say there are no extra legal powers needed to stop Tax Evasion – it is illegal. Though HMRC in the UK and La Hacienda in Spain have to do MORE to stop it and COLLECT the tax.

If you need advice or have a query please email me

Examples of Tax Evasion

  • Being resident in Spain (i.e. living in Spain for more than 183 days in a calendar year) but not declaring income to the tax authorities
  • Not declaring income from property letting
  • Spanish resident having an Individual Savings Account in the UK and tax free interest
  • Not declaring gross paid interest on offshore accounts
  • Wilful refusal to pay tax

Tax Avoidance – Definition

Lawful minimisation of tax liability through sound and perfectly legal financial planning techniques.

Whereas tax avoidance is legal, tax evasion is not.

I am quite happy to answer any queries you may have but I will refer you to an adviser for authorised and regulated advice, if you email me

Examples of Tax Avoidance

  • Pension schemes are legitimate and avoid tax but contributions and benefits have to be within HMRC rules and importantly, limits.
  • UK residents having an Individual Savings Account
  • The legitimate use of ‘loopholes’ created by poorly drafted legislation or statutory instruments
  • QROPS for UK non-residents or intending non-residents
  • QNUPS have been established to specifically be tax efficient. In certain circumstances, QNUPS is appropriate for UK taxpayers as well as expats. Remember, it's the scheme which is Non-UK, not necessarily the taxpayer!
  • The legitimate use of offshore trusts to hold assets
  • The establishment of Trusts or Foundations for charitable purpose
Most Tax Avoidance is totally legitimate!

There are, from time to time schemes available which, whilst not ILLEGAL, stretch Tax Avoidance to the limit. Barclays Bank have recently had several of these closed down and in response have announced the closure of the department concerned. 

My view is that the two countries have a different set of problems;

  • In Spain it is Tax Evasion and in particular a wilful refusal to pay tax. There is still a sizeable ‘black economy’ in Spain not just operated by the Spanish but also by other nationalities, including British, who live in Spain but do not declare their residency.

BEWARE La Hacienda are after you and may I add The Sooner the Better.

  • In the UK there is an ‘industry’ which looks for ways of creating Tax Avoidance. It is up to the Government and especially HMRC to make sure that the tax rules and laws are not circumvented

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You can write to me with your personal experiences, ask me a question or to be put in touch with one of my recommended adviser by sending me an email

Linked with this post are two recent articles from my Blog;

Why Invest Offshore? (NOT for Tax Evasion)

Getting Professional Advice

You can of course also write to me by email

David Goodall
Financial Pages in Spain