Apr 132016
 

A major political storm is brewing in Westminster as more revelations into the tax affairs of leading public figures have come to light.

It appears that many of these figures have salted away substantial sums of money in a trust structure that allows them to draw an income tax free, and with no capital gains tax to pay when they sell their investment. Furthermore, it looks as if the taxman is letting them get away with it.

Publication of tax returns

This new scandal follows hot on the heels of the Prime Minister’s decision to make public his tax returns after he was caught discovered to have once invested in an offshore company owned by his great uncle. Following his decision to reveal his tax affairs, other public figures from all political parties have followed suit, and the results are astounding to say the least.

It appears that there is a type of trust which allows the investor to reclaim up to 50% of his initial outlay in the form of a tax rebate. As if this weren’t enough, the trust pays out income in the form of dividends which are totally tax free, and when the investor sells his interest, he doesn’t have to pay a single penny in capital gains tax.

These investments are confusingly known as venture capital trusts. We have however, been told, on the basis of expert advice that they are not trusts but companies. This should immediately raise eyebrows and call into question the judgement of anyone investing in these creatures – a company masquerading as a trust is surely up to no good.

What do the experts say?

We asked a number of experts including Thomas Dove, a leading Chancery barrister.

“Oh, they’re quite standard, run of the mill investments really” he explained. “VCTs have been around for about 20 years and trade on the London Stock Exchange. You can invest up to £200,000 each year, and you get the tax breaks. This is a bit of a non-story really. You could call it “Man invests in government backed scheme and lawfully reduces tax bill. In fact, the financial section of your own paper often recommends them from time to time.

But when asked why they were called venture capital trusts he was unable to give a satisfactory explanation.

“Well, we do have things called investment trusts that have been around for nearly 150 years. The first one was the Overseas Stock and Mutual Bondwashing Trust and was set up as a trust, but then they’d found they’d broken the law and had to restructure as companies.”

It seems from what Mr Dove is telling us that these “VCTS” are only the tip of the iceberg. It looks as if it’s been going on for some time – as far back as 1868, with investment trusts, which have had a shady history from day one. We understand that the Overseas Stock and Mutual Bondwashing Trust still exists today – and with such a name, who knows what else is lurking beneath the murky world of offshore finance.

Another leading expert, former Attorney General Sir Abraham Haphazard QC gave us advice which, at first glance, appears to be at odds with that of Mr Dove:

“Venture capital trusts are actually quite dubious in investment terms. While the tax breaks are perfectly legitimate and above board, they are quite risky investments. You could lose all your money. I wouldn’t sell one to my grandmother.”

HMRC reaction

We asked a senior official at HMRC about the new revelations and asked him how could this be going on for so long without the taxman doing anything about it? But he declined to answer, saying:

“We do not comment on the private tax affairs of individuals.”

Urgent action needed

We also spoke to Phineas Finn, a former member of the Cabinet, and now a gentleman of leisure:

“It is outrageous that this is going on. I am absolutely appalled. These schemes are morally repugnant. What is clear is that we need urgent action. I know the Prime Minister has just announced another initiative, as well as our European partners, but we need more than that. We need to get the OECD on board as well as the UN and NATO.”

Shaking his head sadly, Mr Finn went on: “Though it pains me to have to say it – I was once a Minister at the Admiralty – but if we can’t handle our own tax affairs, if our own revenue authority is so lax in its fight against tax evasion, we need to be prepared to relinquish our sovereignty and be ruled direct from Brussels instead.”

Drastic words indeed. To think that Britannia, who once ruled the waves and fought on the battlefields of Belgium, defending that poor little country against Napoleonic tyranny, will end up as a Brussels chocolate wrapper. Oh, how the mighty have fallen!

(Tom Towers, The Jupiter, London)

The above is a work of fiction. Any resemblance of any of the characters depicted to any person, fictitious or imaginary, is a pure coincidence. 

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Satwaki Chanda

Satwaki Chanda

Satwaki Chanda is a tax lawyer with a First Class degree in Mathematics. Called to the Bar in 1992, he is the Editor of Tax Notes.
Satwaki Chanda

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  2 Responses to “Westminster in turmoil as new tax scandal erupts”

  1. You are 12 days too late with this.

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