Tax Loopholes

The dictionary on my computer defines a loophole as “an ambiguity or inadequacy in the law or a set of rules”. However, in most countries, the law is defined to be correct; one cannot plead in a court that the law is wrong. If the law is defined to be correct, a loophole, tax or otherwise cannot exist.

However, let’s consider the following situation: Alex normally pays £10,000 in tax per year. However, upon reading the Inland Revenue rules, notices that only £6,000 need be paid. What should Alex do? Remember, while a payment may be morally questionable, both are entirely legal.

Clearly, the difference can’t be described as tax because Alex isn’t compelled to pay it. Therefore, Alex would be making a £4,000 donation to the state.

Isn’t Alex nice.


When it comes to laws, loopholes are hacks - states that the system can get in that are not in line with what was intended by the passage of the law. 

This is often a problem in organised religion, which is why it’s very common to make a distinction between the “letter of the law”, what is actually encoded as a rule in the system, and the “spirit of the law”, the intention for the rule or set of rules.

Pretty much any system is either already in a state where there are incompatibilities between the letter and the spirit, or can be manipulated into such a state by a hacker.