Tax planning with David Cameron

Tom Wilson
12 April 2016

The Prime Minister has unexpectedly released a summary of his earnings and the tax he’s paid. This is his latest attempt to diffuse ongoing scrutiny in light of offshore investments he held before moving into Number 10.

Far from showing the Prime Minister has been sidestepping his tax obligations, the figures in fact seem to show that Mr Cameron has paid more tax than he could have done within the rules.

Commenting on the findings, comedian Jimmy Carr, who the Prime Minister criticised back in 2012 for using a “completely wrong” scheme to legally lower his tax bill, said: ‘I’m going to keep it classy. It would be “morally wrong” and “hypocritical” to comment on another individual’s tax affairs.”

I have no intention of being so classy, so have had a look at the returns published by the Prime Minister.

Between April 2009 and March 2015, Mr Cameron earned £1,084,453, on which he paid £402,283 tax, an effective rate of 37%. That works out roughly at £67,047 tax a year on earnings of £180,742.

Since Chancellor George Osborne was ”shocked” by low tax rates paid by ultra-high earners in 2012, it’s become harder for high earners to eliminate income tax bills. But it’s still possible to reduce income tax bills through legitimate means.

Mr Osborne introduced a limit on how much income tax can be reduced, and the total income tax relief that can be claimed in a single year is now capped at £50,000, or 25% of the total bill, whichever is lower. However, this cap only applies to certain reliefs, and doesn’t include limits on relief from pensions, charitable donations or investments in Enterprise Investment Schemes. 

The information released by Mr Cameron (below) falls way short of a tax return, as it’s been dubbed, making it impossible to see how effectively he’s been managing his tax bill.

Most of the figures are net, rather than gross, which artificially makes his rate of tax look more flattering than it is. His property income, for example, is net of expenses, and his salary is net of pensions contributions. Had he published his gross income, and the reliefs he’s claimed it seems likely his effective rate of tax would be significantly lower than 37%.

Nevertheless, the exercise highlights a few of the reliefs and allowances that the Prime Minister could be using, as could anyone else in his position.

We don’t condone tax evasion at Moneywise, but we do think no one should pay more income tax than they have to. Making the most of pensions, Isas and personal allowances is as important to our personal finances as investing effectively and spending prudently.

David Cameron’s summary of earning and tax paid


Pensions are one of the most popular ways to cut your tax bill, deferring it until you retire on a lower income. Anyone can contribute to a pension, with most people able to contribute and claim relief on £40,000 or their annual income, whichever is lower.

The exception is additional rate taxpayers, of which the Prime Minister is one, who can only pay £10,000 a year.

We don’t know exactly how much tax he’s saved with his pension, as his declared earnings are after pensions contributions have been deducted, but it seems safe to assume he’s put in the full £10,000, knocking £4,500 off his tax bill.

That's subject to the rules around MP's pensions, which we have asked HMRC about and are awaiting clarification. 

Verdict: Probably claimed the maximum.

Personal allowances

Most of us could earn £10,600 in tax year 2015/16 before we started paying tax.

As an additional rate taxpayer, the Prime Minister forfeits this allowance, as would anyone earning £180,740.  

However, as Prime Minister, Mr Cameron is afforded an extra £20,000 earnings allowance, which is worth a pretty penny, particularly as a 45% taxpayer.  

For some reason, he hasn’t claimed this in most years*, effectively gifting £9,000 a year to the taxman.

Verdict: Overpaid tax

* Sort of. Writing in the Guardian, tax expert Rupert Brookes has highlighted Mr Cameron appears to have claimed the £20,000 allowance but then overstated his earnings by the same amount in several years. There’s no tax benefit for doing this, though it’s technically incorrect, says Mr Brookes. 

Additional allowances - property

Mr Cameron’s tax return doesn’t say much about his property income and relief he has claimed, other than the expenses have been deducted. During the reported period, buy to let investors could claim 10% of their rental income as a wear and tear allowance. This allowance has been scaled back, and now investors can only claim actual expenses incurred.

Landlords can also claim tax relief on the interest paid on their mortgage, further reducing their tax liability. Incoming changes will see relief capped at the lower rate, increasing tax bills for higher and additional rate taxpayers. 

Verdict: Unknown

Additional allowances - dividends

By selling off all his shares, the Prime Minister reduced his dividend income to zero, essentially giving up the new £5,000 a year dividend income allowance. 2009-10 was his biggest dividend-earning year, where he only received £721.

Verdict: Overpaid (a little) tax


But if the Prime Minister’s shares were in an Isa, he wouldn’t have had to pay any taxes on dividends at all.

Unlike a pension, you can’t reduce your current tax bill by putting money into an Isa, but they will protect you from future taxes as future growth and earnings is tax free (aside from the 10% withholding tax on dividend profits).

We have no idea how much, if anything Mr Cameron holds in an Isa from this weekend’s disclosure. Even full tax return disclosure wouldn’t tell us as money in an Isa doesn’t need to be declared.

But his earnings suggest he could comfortably fill his Isa allowance, and if he’d done that since 2009, he’d have saved £65,880. Ignoring growth from shares, a modest 3% yield would generate at least £2,000 income tax-free.

Verdict: Unknown

Savings allowance

Mr Cameron received around £1,700 a year in savings income, which was held with a ‘UK high street bank’. The new savings allowance didn’t help, because it didn’t exist between 2009 and 2015, and it wouldn’t anyway as additional rate taxpayers don’t benefit.

For everyone else, lower rate taxpayers can earn £1,000 from savings before they start paying tax, and higher rate taxpayers can get £500 interest tax free.

Verdict: Not applicable.


Mr Cameron declared expenses paid by the Conservative Party, primarily covering clothing, travel and accommodation. These were recognised as benefits in kind, meaning he paid tax on them, at around £9,400 a year, increasing his annual tax bill by £4,200.

Verdict: Unavoidable

Charitable donations

There’s no mention of relief claimed on charitable donations either. Charities can claim lower-rate tax relief on through gift aid, effectively adding £25 to every £100 donated. Higher and additional rate taxpayers can claim the additional relief through their tax return.

Patrons can claim Gift Aid for up to four years’ donations, and gifts will qualify providing they are no more than four times the tax bill for the current tax year.

Verdict: Unclear, but probably missed

Enterprise Investment Schemes

Enterprise Investment Schemes, which offer tax breaks for investments in high risk early stage companies, generally appeal to people who earn enough to fill both their Isa and pension allowance. Through the scheme, people can invest up to £1,000,000 in qualifying companies, and claim 30% income tax relief on the money they invest. The amount claimed can’t be more than your annual tax bill.

In addition to the initial tax relief, losses from poor investments can be offset against other income, and any gains are exempt from Capital Gains Tax, providing shares are held for three or more years.

Verdict: Unclear, probably missed

Inheritance Tax

Mr Cameron’s mum seems much better at tax planning than the Prime Minister.

Though it didn’t sit within his annual tax return, it also emerged at the weekend she gifted him £200,000 after the death of his father.

Under UK inheritance tax rules, assets can be passed freely between spouses. People can also gift money to family members without generating an inheritance tax bill, providing they live for at least seven years afterwards.

Had David Cameron received this money from his father when he died, the tax bill would have been some £70,000. Instead, providing his mother lives for the necessary 7 years after the gift was made, there will be no inheritance tax to pay at all.

In conclusion, this disclosure actually answers very few questions about the Prime Minister’s tax arrangements. They confirm the Prime Minister’s fundamental assertion – he’s done nothing wrong. But they also back up what the more sensible critics are saying – his taxes may have been in order, his explanation was and is a mess.