Concern over loophole that allows the wealthy to reduce their tax bill

Chancellor George Osborne announced in his Budget statement that he was “shocked” at the extent of tax avoidance by millionaires who are able to reduce their tax bill to less than 10% of earnings. In certain circumstances, tax planning has enabled some wealthy taxpayers to reduce their tax bill to close to zero. By loophole, we presume that he is referring to the fact that individuals are able to reduce their tax liability by offsetting business losses against their income through the use of Limited Liability Partnerships (or LLP’s). 

Offsetting losses is a common method used to reduce an individual’s taxable income and is essential for entrepreneurs who suffer start up losses in establishing their business. Partnership rules enable members to offset their business losses against other personal income and are often the structure of choice for wealthy individuals. 

The chancellor has responded by introducing a cap on tax reliefs available to taxpayers equal to the greater of £50,000 or 25% of income.