Politicians, Hypocrites and Glass Houses
I heard Ed Miliband on Sky News the other day - he was on his high horse about tax avoidance and the former Labour leader wanted everyone to know that people who find ways to limit their tax bill deserve public condemnation.
How very odd, I thought to myself, because I seemed to recall Ed doing something similar to avoid paying inheritance tax on his late father's estate and, sure enough, I wrote about this on my blog back in 2015.
Backlash Begins (February 16, 2015)
Ed Miliband has, as I expected been accused of rank hypocrisy over his attempt to paint himself and the Labour Party as 'whiter than white' over tax avoidance.
Ed Miliband is personally exposed by a family arrangement to change Ralph Miliband's will by a 'deed of variation' which allowed them to re-allocate the father's assets (even after his death) in a way that minimised or avoided a big inheritance tax bill.
So instead of their mother acquiring all of the family's property assets, the two brothers were allocated 20% each while their mum retained 60%.
Now this was perfectly lawful and most people would say it was eminently sensible as well, but you can't dress it up as anything other than tax avoidance or minimising your tax bill, I'm afraid.
And other skeletons are starting to tumble out of Labour's closet as this article from The Sunday Times demonstrates only too well.
Soon we'll be on to people who are not well-known Labour donors but prominent supporters such as Sir Alex Ferguson though the public won't be interested in such a fine distinction, if you ask me.
Soon we'll be on to people who are not well-known Labour donors but prominent supporters such as Sir Alex Ferguson though the public won't be interested in such a fine distinction, if you ask me.
Top Labour donor in tax haven row
Tories accuse Miliband of hypocrisy
By James Lyons, Josh Boswell and Jon Ungoed Thomas - The Sunday Times
Sir David Garrard placed shares in an offshore trust that can be used to avoid tax
ED MILIBAND is facing accusations of hypocrisy over revelations that a property tycoon who is bankrolling the Labour party placed shares in an offshore trust that can be used to avoid tax.
Details of the financial arrangements of Sir David Garrard came to light after the HSBC Swiss bank accounts scandal ignited a furious political row over tax.
Miliband yesterday stepped up his attack on Lord Fink, the Conservative donor who said he had put shares into family trusts as part of “vanilla” tax avoidance measures.
Conservatives said Garrard’s use of offshore arrangements meant that Miliband was guilty of “breathtaking” double standards.
Lawyers acting for the Labour donor said he had done nothing wrong when shares in his property company, Minerva, were “settled on trusts for him and his late wife”. All the transactions were fully declared to the UK tax authorities.
The row raged amid developments in the scandal, which has seen HSBC admit helping clients to avoid tax with secret Swiss accounts and UK tax officials pilloried over their handling of a leaked list of those involved. Yesterday:
Miliband announced that a Labour government would hold a full and independent inquiry into HM Revenue & Customs
HSBC issued a public apology for its actions
Lord Green, the HSBC chairman at the time of the scandal and who was made a minister by David Cameron, was revealed to have avoided paying up to £2.3m tax on his bank pension
Green stepped down as head of The City UK, the financial services trade body, in the wake of the scandal
Senior executives at HSBC’s private bank were found to have pocketed £70m in pay and bonuses in three years
Miliband faced criticism over a property company run by Labour which has paid no corporation tax for a decade.
Garrard is among a small band of wealthy supporters who have donated to Labour since Miliband beat his brother David to the party leadership. Garrard gave £690,000 last year to the party and has promised to fund Labour’s battle against the SNP in Scotland.
The tycoon, who was embroiled in the cash for honours scandal, made his fortune through Minerva, a property investment and development firm that he set up with Andrew Rosenfeld, also a Labour donor, who died last week.
Shares from the company were placed in trust for Garrard and his wife when it was founded in 1989.
Minerva company documents from 1998, seen by The Sunday Times, show that 1.8m shares were held on behalf of the David Garrard 1989 Trust by a Jersey company, Hummel Investments Limited. Officials from the Codex Trust Company, based in the tax haven of Liechtenstein, also acted on behalf of the family trust. In 1995, 16.7m Minerva shares were transferred to this company. Garrard’s lawyers declined to comment on whether these shares were held on behalf of the family trust.
In 2005 Minerva announced that shares from Garrard’s family trusts had been sold as the tycoon retired from the business. It was reported that he made £37m from the sale of shares at the time.
He was living as a tax exile in Switzerland after his retirement when he was nominated for a peerage. His name was withdrawn after revelations that he was among Labour supporters who had made secret loans to the party.
Experts say placing shares offshore before 1998 offered possible reductions in capital gains tax liabilities when they were sold. The rules on trusts have since been tightened.
Last night the Tory MP Andrew Bridgen said of Garrard: “Miliband’s hypocrisy on this issue is absolutely breathtaking. He’s tried to sound tough on tax avoidance but has taken hundreds of thousands of pounds from someone who has made use of offshore family trusts.”
His comments came as Miliband faced further embarrassment when two more Labour supporters faced questions over their tax affairs last night.
Bill Thomas, chairman of Labour’s small business taskforce who Ed Balls had referred to as “Bill somebody” in a television interview, has invested with the controversial Invicta Film Partnership, according to The Sun on Sunday. A number of Invicta’s schemes are under investigation by HMRC. Thomas denied investing in order to cut his tax.
The green energy tycoon Dale Vince, who last week promised Labour £250,000, has loaned himself £3.2m interest free from his company Ecotricity, according to The Sunday Telegraph. If Vince used the loan as a replacement for a salary, he could have reduced his income tax bill.
Conservatives also seized on the fact that Labour Party Properties Limited, a company wholly owned by the party, has not paid corporation tax for more than 10 years despite raking in almost £10m in rents.
Dozens of MPs have been charging taxpayers hundreds of thousands of pounds in expenses to hire constituency offices from the firm since rgw last election. The corporation tax payment was £44,000 in 2002.
Charlie Elphicke, a Conservative MP, said: “It’s the same old do-as-we-say-not-as-we-do attitude from the Labour party. ”
Labour emphasised that independent auditors were happy with the company’s arrangements. “The Labour party takes no measures to reduce our tax liability and we pay all tax that is due,” a party spokesman said.
“The purpose of Labour Party Properties is to ensure the organisation’s properties are fit for purpose rather than to return a profit and rents received are used to maintain the buildings in the portfolio.”
Miliband has already faced questions about his own tax affairs, particularly a deal that reduced inheritance tax on his parents’ north London home.
At Labour’s Welsh conference yesterday he declared he would not “back down” and said Cameron was “turning a blind eye” to tax avoidance.
Labour is also expected to raise questions about the family trust of George Osborne, the chancellor, and the tax arrangements of Cameron’s father-in-law, Lord Astor, whose estate on the Scottish island of Jura has been held in an offshore trust.
ED MILIBAND is facing accusations of hypocrisy over revelations that a property tycoon who is bankrolling the Labour party placed shares in an offshore trust that can be used to avoid tax.
Details of the financial arrangements of Sir David Garrard came to light after the HSBC Swiss bank accounts scandal ignited a furious political row over tax.
Miliband yesterday stepped up his attack on Lord Fink, the Conservative donor who said he had put shares into family trusts as part of “vanilla” tax avoidance measures.
Conservatives said Garrard’s use of offshore arrangements meant that Miliband was guilty of “breathtaking” double standards.
Lawyers acting for the Labour donor said he had done nothing wrong when shares in his property company, Minerva, were “settled on trusts for him and his late wife”. All the transactions were fully declared to the UK tax authorities.
The row raged amid developments in the scandal, which has seen HSBC admit helping clients to avoid tax with secret Swiss accounts and UK tax officials pilloried over their handling of a leaked list of those involved. Yesterday:
Miliband announced that a Labour government would hold a full and independent inquiry into HM Revenue & Customs
HSBC issued a public apology for its actions
Lord Green, the HSBC chairman at the time of the scandal and who was made a minister by David Cameron, was revealed to have avoided paying up to £2.3m tax on his bank pension
Green stepped down as head of The City UK, the financial services trade body, in the wake of the scandal
Senior executives at HSBC’s private bank were found to have pocketed £70m in pay and bonuses in three years
Miliband faced criticism over a property company run by Labour which has paid no corporation tax for a decade.
Garrard is among a small band of wealthy supporters who have donated to Labour since Miliband beat his brother David to the party leadership. Garrard gave £690,000 last year to the party and has promised to fund Labour’s battle against the SNP in Scotland.
The tycoon, who was embroiled in the cash for honours scandal, made his fortune through Minerva, a property investment and development firm that he set up with Andrew Rosenfeld, also a Labour donor, who died last week.
Shares from the company were placed in trust for Garrard and his wife when it was founded in 1989.
Minerva company documents from 1998, seen by The Sunday Times, show that 1.8m shares were held on behalf of the David Garrard 1989 Trust by a Jersey company, Hummel Investments Limited. Officials from the Codex Trust Company, based in the tax haven of Liechtenstein, also acted on behalf of the family trust. In 1995, 16.7m Minerva shares were transferred to this company. Garrard’s lawyers declined to comment on whether these shares were held on behalf of the family trust.
In 2005 Minerva announced that shares from Garrard’s family trusts had been sold as the tycoon retired from the business. It was reported that he made £37m from the sale of shares at the time.
He was living as a tax exile in Switzerland after his retirement when he was nominated for a peerage. His name was withdrawn after revelations that he was among Labour supporters who had made secret loans to the party.
Experts say placing shares offshore before 1998 offered possible reductions in capital gains tax liabilities when they were sold. The rules on trusts have since been tightened.
Last night the Tory MP Andrew Bridgen said of Garrard: “Miliband’s hypocrisy on this issue is absolutely breathtaking. He’s tried to sound tough on tax avoidance but has taken hundreds of thousands of pounds from someone who has made use of offshore family trusts.”
His comments came as Miliband faced further embarrassment when two more Labour supporters faced questions over their tax affairs last night.
Bill Thomas, chairman of Labour’s small business taskforce who Ed Balls had referred to as “Bill somebody” in a television interview, has invested with the controversial Invicta Film Partnership, according to The Sun on Sunday. A number of Invicta’s schemes are under investigation by HMRC. Thomas denied investing in order to cut his tax.
The green energy tycoon Dale Vince, who last week promised Labour £250,000, has loaned himself £3.2m interest free from his company Ecotricity, according to The Sunday Telegraph. If Vince used the loan as a replacement for a salary, he could have reduced his income tax bill.
Conservatives also seized on the fact that Labour Party Properties Limited, a company wholly owned by the party, has not paid corporation tax for more than 10 years despite raking in almost £10m in rents.
Dozens of MPs have been charging taxpayers hundreds of thousands of pounds in expenses to hire constituency offices from the firm since rgw last election. The corporation tax payment was £44,000 in 2002.
Charlie Elphicke, a Conservative MP, said: “It’s the same old do-as-we-say-not-as-we-do attitude from the Labour party. ”
Labour emphasised that independent auditors were happy with the company’s arrangements. “The Labour party takes no measures to reduce our tax liability and we pay all tax that is due,” a party spokesman said.
“The purpose of Labour Party Properties is to ensure the organisation’s properties are fit for purpose rather than to return a profit and rents received are used to maintain the buildings in the portfolio.”
Miliband has already faced questions about his own tax affairs, particularly a deal that reduced inheritance tax on his parents’ north London home.
At Labour’s Welsh conference yesterday he declared he would not “back down” and said Cameron was “turning a blind eye” to tax avoidance.
Labour is also expected to raise questions about the family trust of George Osborne, the chancellor, and the tax arrangements of Cameron’s father-in-law, Lord Astor, whose estate on the Scottish island of Jura has been held in an offshore trust.
Two Faces of Tax (February 16, 2015)
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I've been listening to Ed Miliband banging on about tax avoidance these past couple of days and what I can't figure out is why some tax avoiders are perfectly acceptable to the Labour Party while others come in for scathing public criticism.
As everyone knows, tax avoidance is perfectly lawful, but an awful lot of people try to minimise the amount of tax they have to pay and it's only when they cross the line and enter into aggressive and artificial schemes that they tend to come unstuck.
As did Sir Alex Ferguson a little while back although I can't remember Ed Miliband singling out the former Manchester United boss for criticism, perhaps because he is often on hand with a favourable comment on Labour's behalf or to encourage fellow Scots to vote 'No' in the last year's independence referendum.
Now Sir Alex's is clearly entitled to his view and he's also entitled to minimise his tax bill within the law, but it seems to me that Ed Miliband is being a hypocrite by turning a blind eye to the behaviour of Labour supporters while lambasting others for doing the same thing.
Tax Avoidance (19/01/14)
The Sunday Times continues its campaign against tax avoidance in high places with this cautionary tale about Underdog - a complicated scheme involving a 'circular flow of funds' which has been successfully challenged by the taxman as it looked as though it was specifically devised for tax purposes.
Now I don't really understand the motivation of people who are already very well off trying to reduce even further their fair share of tax - and that seems to be what this is all about.
In which case the issue is not so much the headline rate of tax - 40, 45 or even 50p - but the lengths that some people will go to in an effort to avoid their tax bills to an artificially low level.
Sir Alex faces £1m loss as tax ruse fails
Ferguson and other investors have seen a ploy involving Disney films turn into a B-movie disaster
By Nicholas Hellen
The movie Underdog was used in a complex film-rights scheme (Rex Features)
SIR ALEX FERGUSON, the retired Manchester United manager, and Sven-Goran Eriksson, the former England football manager, are among nearly 300 wealthy individuals who face average losses of more than £1m each over a tax avoidance scheme that has backfired.
Under the scheme, the investors joined a partnership that bought the rights to two Hollywood movies — the Disney films Enchanted and Underdog — and enabled them to claim tax relief on the borrowing costs of the deal.
But HM Revenue & Customs (HMRC) has successfully challenged the tax avoidance vehicle, known as Eclipse 35, and an attempt to restructure it has so far failed. The result is that investors may face tax bills that could be more than seven times greater than their initial investment.
The £1bn vehicle is one of 40 such schemes that attracted celebrities, financiers and businessmen. Investors hoped that, after HMRC successfully challenged Eclipse 35, Barclays would agree to restructure the deal to reduce the personal liabilities of investors.
SIR ALEX FERGUSON, the retired Manchester United manager, and Sven-Goran Eriksson, the former England football manager, are among nearly 300 wealthy individuals who face average losses of more than £1m each over a tax avoidance scheme that has backfired.
Under the scheme, the investors joined a partnership that bought the rights to two Hollywood movies — the Disney films Enchanted and Underdog — and enabled them to claim tax relief on the borrowing costs of the deal.
But HM Revenue & Customs (HMRC) has successfully challenged the tax avoidance vehicle, known as Eclipse 35, and an attempt to restructure it has so far failed. The result is that investors may face tax bills that could be more than seven times greater than their initial investment.
The £1bn vehicle is one of 40 such schemes that attracted celebrities, financiers and businessmen. Investors hoped that, after HMRC successfully challenged Eclipse 35, Barclays would agree to restructure the deal to reduce the personal liabilities of investors.
Sir Alex Ferguson faces potential liabilities many times his initial investment (Rex Features)The Sunday Times has established the bank has so far refused to do so, so 289 investors — including Ferguson and Eriksson — are now facing potential liabilities many times the size of their initial investments.
Hundreds of wealthy investors in similar schemes are now likely to be pursued by the HMRC.
Eclipse 35 was promoted by Future Capital Partners, an investment firm in Mayfair, central London, and first used in 2006. It was a contorted but potentially lucrative money trail.
The partnership bought worldwide distribution rights to the two films from Disney for £503m. It then relicensed those rights back to Disney for £1.02bn, payable over 20 years. The deal was funded with £50m from investors and £790m in loans from Barclays. Eclipse made a payment to Barclays on the loan of £293m, for which it claims tax relief of £117m.
It looked complicated, but in essence it was a circular flow of funds that created an upfront interest payment on which the investors could claim tax relief. To the taxman, it looked as if it was primarily devised for tax purposes.
Tim Levy, the founder of Future Capital Partners, told a tax tribunal scrutinising Eclipse 35 in 2011: “Tax was important, there is no question about that, but I genuinely believe that these investors were motivated significantly by the nature of the films that were being offered.”
Hundreds of wealthy investors in similar schemes are now likely to be pursued by the HMRC.
Eclipse 35 was promoted by Future Capital Partners, an investment firm in Mayfair, central London, and first used in 2006. It was a contorted but potentially lucrative money trail.
The partnership bought worldwide distribution rights to the two films from Disney for £503m. It then relicensed those rights back to Disney for £1.02bn, payable over 20 years. The deal was funded with £50m from investors and £790m in loans from Barclays. Eclipse made a payment to Barclays on the loan of £293m, for which it claims tax relief of £117m.
It looked complicated, but in essence it was a circular flow of funds that created an upfront interest payment on which the investors could claim tax relief. To the taxman, it looked as if it was primarily devised for tax purposes.
Tim Levy, the founder of Future Capital Partners, told a tax tribunal scrutinising Eclipse 35 in 2011: “Tax was important, there is no question about that, but I genuinely believe that these investors were motivated significantly by the nature of the films that were being offered.”
The Disney film Enchanted was a hit with critics and audiences (Kobal Collection)In April 2012, the tax tribunal upheld HMRC’s challenge. An appeal was dismissed last December, so revenue received by Eclipse 35 cannot be written off against tax.
Worse for the investors, it potentially meant they would be personally liable for income tax on money received by Eclipse 35 which is used to pay off the loan.
An analysis by Pannone, the legal firm, states: “This leads to a disastrous outcome where investors must pay not only their own tax, which they sought to shelter in the scheme, but also tax on ‘income’ they have never received.This could be financially devastating for many.”
The investors had hoped for a getout. They considered that by transferring the Barclays loans to another entity, they could avoid personal tax liabilities on the income.
But last week Levy informed them that Barclays had not agreed to transfer the loans. It is likely other schemes will face the same problem. In an email on Tuesday, Levy wrote: “Neither of the lending banks in the Eclipse Partnerships, being Barclays Bank and Bank of Ireland will currently novate [transfer] the loans entered into by individual members of the Eclipse Partnerships.”
Rebus Investment Solutions, a claims management firm representing 28 Eclipse 35 investors, has estimated the losses could be seven times their initial outlay. It says an average member who invested £173,000, will face a potential total cost of £1.266m in tax and interest.
Many of Rebus’s clients invested more modest sums and those who invested twice the average stake could face a cost of £2.5m.
Rebus said it represented 79 disgruntled investors in 19 other Eclipse partnerships, which have different structures. It wrote to these clients on February 5, warning that they stand to owe around £390,000 for every £60,000 they contributed in cash.
An HMRC spokesman said: “One of the many drawbacks with putting money into avoidance schemes is that you can end up owing a lot more than if you had played by the rules. If it sounds too good to be true, it is.”
Barclays said: “Barcays will not participate in transactions or schemes which have a tax avoidance purpose that does not meet our tax principles.” The exact sums invested by Ferguson and Eriksson are not known. They did not respond to requests for comment.
Worse for the investors, it potentially meant they would be personally liable for income tax on money received by Eclipse 35 which is used to pay off the loan.
An analysis by Pannone, the legal firm, states: “This leads to a disastrous outcome where investors must pay not only their own tax, which they sought to shelter in the scheme, but also tax on ‘income’ they have never received.This could be financially devastating for many.”
The investors had hoped for a getout. They considered that by transferring the Barclays loans to another entity, they could avoid personal tax liabilities on the income.
But last week Levy informed them that Barclays had not agreed to transfer the loans. It is likely other schemes will face the same problem. In an email on Tuesday, Levy wrote: “Neither of the lending banks in the Eclipse Partnerships, being Barclays Bank and Bank of Ireland will currently novate [transfer] the loans entered into by individual members of the Eclipse Partnerships.”
Rebus Investment Solutions, a claims management firm representing 28 Eclipse 35 investors, has estimated the losses could be seven times their initial outlay. It says an average member who invested £173,000, will face a potential total cost of £1.266m in tax and interest.
Many of Rebus’s clients invested more modest sums and those who invested twice the average stake could face a cost of £2.5m.
Rebus said it represented 79 disgruntled investors in 19 other Eclipse partnerships, which have different structures. It wrote to these clients on February 5, warning that they stand to owe around £390,000 for every £60,000 they contributed in cash.
An HMRC spokesman said: “One of the many drawbacks with putting money into avoidance schemes is that you can end up owing a lot more than if you had played by the rules. If it sounds too good to be true, it is.”
Barclays said: “Barcays will not participate in transactions or schemes which have a tax avoidance purpose that does not meet our tax principles.” The exact sums invested by Ferguson and Eriksson are not known. They did not respond to requests for comment.
Sven-Goran Eriksson was among the 289 investors in the film scheme (Dave Pinegar)
