Your Taxes: Rayner affair - avoidance vs evasion

In her September 5 resignation letter, Rayner wrote: “I deeply regret my decision not to seek additional specialist advice… I take full responsibility for this error.”

Israel has a similar rule imposing lower rates of purchase tax on the purchase of a single home. Other Israeli tax principles are also derived from the UK.

So was there tax avoidance or tax evasion in either or both countries?

Few topics in tax law provoke as much public debate as the distinction between tax avoidance and tax evasion. Politicians, business leaders, and ordinary taxpayers alike are often accused of blurring the two. Yet under UK law, the difference is clear: one is legal (if contentious), the other criminal.

Tax evasion is the unlawful act of deliberately concealing income, misrepresenting financial affairs, or otherwise deceiving HM Revenue & Customs (HMRC). It is a criminal offence, punishable by prosecution, fines, and potentially imprisonment. Examples include hiding income offshore, falsifying records, or underreporting cash sales.

Tax avoidance, by contrast, is technically legal. It involves exploiting gaps or ambiguities in the tax code to reduce liability—for example, structuring a business through offshore subsidiaries, or arranging personal finances to minimize inheritance tax. Such arrangements may comply with the letter of the law, but often breach its spirit.

UK law has grown increasingly intolerant of aggressive avoidance. The General Anti-Abuse Rule (GAAR), introduced in 2013, allows HMRC to strike down arrangements it deems “abusive,” levy penalties of up to 60%, and demand immediate repayment. The message is clear: legality alone does not guarantee safety from challenge.

This line matters because it protects the integrity of the tax system. A legal framework that confuses error, avoidance, and evasion risks either over-criminalizing genuine mistakes or under-punishing deliberate fraud.

The Rayner case has drawn public attention to these boundaries. Rayner admitted to underpaying stamp duty when purchasing a property, citing reliance on poor legal advice. The sum involved could exceed £40,000.

While politically damaging, her case illustrates the nuances: there is currently no evidence of deliberate concealment (evasion), nor of carefully engineered tax loopholes (avoidance). Instead, it highlights a third category—mistake or misadvice—which, though embarrassing for a senior official, is treated differently under UK law.

Rayner’s controversy is far from unique. From celebrities using offshore trusts to multinational corporations engaging in “profit shifting,” tax behavior sits on a spectrum. At one end lies outright fraud; at the other, entirely legitimate tax planning (such as using UK ISA savings or pension contributions).

So we must distinguish carefully between: (1) Evasion: always illegal, always punishable; (2) Avoidance: legal but contestable, increasingly disfavored; (3) Error: unintentional misreporting, often corrected with interest and penalties but without criminal stigma.

Distinguishing avoidance from evasion—and both from honest mistakes—remains essential to preserving trust in the tax system.

Israel has a general anti-avoidance rule (also GAAR) which targets artificial or fictitious acts.

The Israeli tax Authority typically invokes the Israeli GAAR if an act or series of acts appear to lack commercial rationale, i.e. they amount to tax evasion not legitimate anti-avoidance.

Also, Israeli banks generally block remittances to and from Israel until tax compliance in each country concerned is proven.

The Rayner affair ended swiftly a few days after the tax problem surfaced. Many Israeli cases are settled without reaching court. A tax amnesty procedure also exists in Israel.

When hiring professionals, check what the engagement agreement says they are engaged to do.

As always, consult experienced tax and professional advisors in each country at an early stage in specific cases.