Friday, April 10, 2009

Family Trusts & Tax Dodging- A Timeless Combination.

One of the ways the super rich avoid having their descendants pay tax on their inheritances or go on a mad spending spree that squanders the family fortune is to form charitable trusts which their family can administrate for a lucrative salary for generations, hence the Rockefeller, Carnegie and Ford foundations (the Bill & Melinda Gates foundation is a bit different because that is planned so it will expire at some point in the future).

I'd always assumed this was a 20th century American invention, so was surprised to learn that it is a dodge that has been going on since at least the time of the medieval Ottoman Empire:
Under Islamic law property given to endow a Vakif {An Islamic Charity} could never be taken from it, and its income was meant to be tax free, many rich Muslims would appoint their descendants as salaried administrators of these endowments, thus creating in effect a financially advantageous family trust.
The quote is from Noel Malcolm's 'Kosovo- A Short History'.

The Ottomans hadn't advanced to the stage where the Sultan would pay the vakifs to lobby him, but it's interesting how similar tax arrangements will create similar dodges hundreds of years apart in completely different cultures.

1 comment:

Mark Wadsworth said...

Yet another reason for scrapping Inheritance Tax (which only raises 0.5% of all tax revenues anyway, about as much as the TV licence fee) and rolling them into Land Value Tax (which cannot be evaded, because you can't take land offshore etc.).