Wealth Manager - the site for professional investment managers

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Wealthy face £325m bill as HMRC wins tax scheme battle

HM Revenue and Customs expects to net £325 million in unpaid tax from a scheme used by the wealthy.

The tax office use won its battle against the scheme, known as Clavis Liberty Fund 1 Limited Partnership.

The scheme protected £18 million of taxpayers’ money, but HMRC said the decision will have wider implications for hundreds of other users of Liberty schemes.

The scheme, promoted to high earners by Mercury Tax Group, sought to create artificial tax losses that were later claimed against scheme users’ other income to reduce their tax bills.

It involved a limited partnership that was registered in Jersey and was claiming to carry out trade in the UK. Each of the users of the scheme contributed a sum which was used, with a large bank loan, to acquire rights to dividends declared by a company registered in the Cayman Islands.

According to HMRC, the partnership claimed a deduction for the cost of purchasing the dividend rights but tried to exclude the dividends received from its trading results, creating a loss which was used to reduce users’ tax bills.

The Upper Tribunal endorsed the First-tier Tribunal’s decision that the dividend transaction was artificial and uncommercial.

HMRC’s director general for customer compliance, Penny Ciniewicz, described the decision as a ‘brilliant victory that will bring in millions of pounds’.

She added: ‘We have repeatedly warned people about the financial consequences of using tax avoidance schemes. More and more people are coming forward and settling what they owe because they know the game is up. Our message is clear – steer clear of tax avoidance schemes or, like Liberty’s users, you’ll face a hefty consequence.' 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Your Business: Cover Star Club

Profile: Kleinwort Hambros' boss on how to manage five banks

Profile: Kleinwort Hambros' boss on how to manage five banks

Welding together Kleinwort and Hambros – two of Britain’s most historic banks, founded in 1786 and 1839 respectively – was always going to be a challenge.

Wealth Manager on Twitter