Cameron Gate

the truth behind the headlines paints a very different picture

Over the last few days, Cameron Gate has made gripping headlines pointing to some heinous crimes; £50,000 worth of expenses, £200,000 of inheritance tax avoidance, tax reduction and even worse someone who has earned over £1 million.

But the truth behind the hysteria paints a very different picture.

Earnings

Many people have not seen wages rise for several years; it may surprise many to see that David Cameron’s wages have remained almost the same for the last four years.

Of course, for the average worker on £26,500 a year there seems a big difference between this and the £200,000 David Cameron receives. However, if David Cameron ran a FTSE 100 company with effectively a smaller budget and fewer workers he would be earning nearly 4 times his current income.

Tax

Over the last four years David Cameron has seen his tax reduce by about £2,000 directly benefiting from the reduction in the 50% tax rate but he is not the only one in the UK to benefit from tax reductions. The nil rate band has significantly increased from £6,475 in 2010/11 to £11,000 in 2016/2017. On the other side the higher rate band is moving towards £45,000. (By earning over £150,000 David Cameron loses his personal allowance).

All of this means that more and more people are paying less tax then they were 4 years ago. So although people like David Cameron haven’t seen real wage increases they have benefited from a reduction in taxes seeing take home pay increase.

Benefits in kind

Many have been quick to pick up on the taxable expenses. This is to cover clothes, travel etc. As the papers state the Camerons like designer clothes costing £2,000 a time. Over the last three years they have received about £7,000 a year which means that it is unlikely these expenses are paying for their designer wardrobe.

Much of the funding of the political parties is through donations whether individuals or companies and therefore these expenses are not tax payer funded as we are being told. Importantly David Cameron is paying tax on these expenses.

Interestingly many people who claim expenses don’t have to pay tax on them so it is worth asking why David Cameron has to pay tax on them. Perhaps it is no different to us having gym membership, private health insurance etc as part of our employment package.

Paying tax

If anything these wage slips are really important because it shows that David Cameron does pay tax for everything!

He even pays tax on savings; in theory higher rate tax payers should declare interest on cash savings. The question is how many actually do this? Equally, how many are happy to take cash in hand jobs and not pay tax, seeing nothing wrong with their actions. And equally although many rightly deserve benefits, there are some who milk the system penalising those who really need it.

Making use of tax allowances

The whole situation arose because David Cameron held shares in an offshore company. Firstly, he paid tax on the dividends – it is worth asking like with interest payments how many higher rate tax payers declare all dividends they receive and pay the tax due. Secondly, when he sold the shares the profit was offset against capital gains, a benefit available to all.

If we dig a little further it appears that he uses salary sacrifice to pay pension contributions. This can be a more tax efficient way of paying contributions through lowering salary and in theory reducing the national insurance contributions paid by the employer and employee. For those on the edge of paying higher rate tax or near the £50,000 child benefit limit this could be a valuable tax planning tool.

Then we turn to inheritance tax planning and gifting. He has received £200,000 which assuming his mother survives for another 2 years he will pay no tax on. This is a legitimate tax planning tool and for those facing inheritance tax bills one to be considered.

Summary

Cameron Gate is interesting because it shows that David Cameron has had no pay rise for four years although he has seen his net pay increase, it shows like many people he suffers from low interest payments on his savings, he pays tax for everything he earns and he uses tax planning tools available to all.

If we should take anything from this, it is about being honest and declaring everything we earn whether the cash in hand jobs or interest on savings (or dividends) and importantly where we can, we should make use of legitimate tax planning tools.

 

Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.

Please note...

Shininglights.co.uk is not regulated by the FCA. The information is purely a guide and it is the responsibility of the investor to carry out their own research before making any final decisions. We will ensure that the information is as accurate as possible but we cannot be held accountable for any errors or omissions. No products are sold on this site, nor do we endorse any particular product or investment.

Where there are links to third party sites this is not an endorsement of that site, and we cannot be held responsible for the accuracy of the information on that site.

Where there is reference to performance you should note that past performance is purely a guide and investments can fall as well as rise.

The information on the site belongs to shininglights.co.uk and cannot be replicated or copied without our permission.