My daughter’s political career is already over

Unwittingly, I may have killed my 8yo’s prospects of a political career even before she could even say Hard Working Families. How? Well when she was born Gordon Brown was giving out money to babies in the form of Child Trust Funds. I did the paperwork and put the money into the most unimaginative thing possible – a cheap FTSE100 tracker fund, with the idea that I would think more about where it should be invested at a later time.

What’s the problem? Well, in short, this:

  
(Just to be clear, the asset line is for the whole fund, not my daughter’s holding.)

She will never be able to say that she didn’t have a trust fund.

She will never be able to say that she never benefitted from offshore investments. 

When the press has a go at her evil financier father who must’ve known what he was doing, she should best not defend me so as not to put me ‘in play’. 

It would be a real mistake for her to tell the press that commingled investment funds are domiciled offshore typically so that the owners of units don’t get taxed twice for owning underlying shares and that she would be as liable for tax through her offshore holding as she would have been by holding the underlying shares direct. 

She should by no means tell people that actively choosing to buy a product (like, let’s say, a book over the Internet, or a fancy branded coffee) is probably more ethically dubious than investing in commingled investment funds offshore that are registered with the tax authorities and push all income and capital through the tax system in *exactly the same manner as investing directly onshore* would, but at a fraction of the cost given economies of scale.

Because that would just be digging herself a deeper hole.

That’s all too complicated, and she would then undoubtedly have to apologise for a massive and self-inflicted communications failure.

On the other hand, there is the chance that if she went into politics she possibly might embark upon a programme of government that is premised on economic illiteracy, be overly political in the way she chose to distribute resources, and call periodic imbecilic referenda.

So perhaps I’ve done the rest of us a favour.

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6 thoughts on “My daughter’s political career is already over

  1. Pingback: Snigger | Tim Worstall

  2. would you mind spelling out, for those of us unfamiliar with this territory, why a UK domiciled fund would result in owners of units getting taxed twice for owning underlying shares?

    [I have a very small amount of money in a tracker run by Santander – was Abbey – and an equally small child’s ISA where the tracker is I think Fidelity – are these likely to be offshore too?]

    I don’t know why I felt the need to tell you how large or small the funds are, but I am leaving that there is evidence of my absurd left-wing ticks

    • Hi Luis – I’m afraid I’m not a tax expert, and it does seem pretty complicated when I look at it all.

      First thing to say is that what I *don’t* mean is that she might have been taxed double. (I want to spell this out, because re-reading, this could have been taken as the intonation).

      Second thing, until 2009 I understand that UK corporation tax was payable on foreign income in OEICs, but that has since been scrapped, making UK funds look in many cases better as commingled vehicles than funds domiciled offshore (in not getting taxed twice). There are apparently still some issues about mixed asset funds that can penalise fund holders vs directly holding the underlying in place.

      The key sentence that signifies whether holding a fund gives same exposure to paying tax is whether it has UK Distributor/ Reporting status.

      I’d welcome comments and corrections from the tax savvy among you, but please – please don’t take anything on this blog as tax advice!!!

    • The answer is that they wouldn’t be – but only if you were a UK resident. Many of the funds however want to attract investment money from all over the world in order to build up the economies of scale required to get better investment returns. So a French investor would end up earning less from the fund due to it being taxed in the UK and then them receiving distributions after UK tax has been paid, and then paying French tax on them (as they won’t have access to the underlying UK tax paid to offset). This would mean the UK ends up getting taxes from a French person’s investment returns, and France receives less tax as the dividends paid are lower (which doesn’t seem “fair”).

      So you manage the funds in an offshore location and this means that every person receives the full amount of dividends and the home country gets to tax the full return. Often this is made easier to police as the fund registers with various tax authorities around the world and tells them the distributions made to its residents (which is what happened with the unit trust Cameron was invested in).

      Yes, you could get funds managed in the UK for just UK people but, as happens with many of these things, due to the historical requirement you end up getting centres of excellence where you want to base these things (which is why London is a global financial base) – the expertise is in offshore locations, the best people work out of them, and therefore the funds are located there, which means the best people work there, and more funds are located there etc etc etc.

  3. periodic
    ˌpɪərɪˈɒdɪk/
    adjective
    1.
    appearing or occurring at intervals.
    “the periodic visits she made to her father”
    synonyms: regular, periodical, at fixed intervals, recurrent, recurring, repeated, cyclical, cyclic, seasonal; More

  4. thanks James. I don’t really understand why, if an OFC can work out how to administer a fund in a way that avoids double taxation, everywhere cannot do the same.

    Does something similar apply to FDI investment vehicles? Development agencies like the World Bank’s IFC and the multi-donor PIDG are often criticised for using OFCs, and whilst they invariably refer to “legitimate reasons” for using OFCs they are remarkably bad at articulating what they are. I don’t suppose you could?

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