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Taxman beats offshore bankers

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3,000 UK residents look set to hand over millions of pounds in tax after the High Court ruled that offshore trusts can no longer be tax-havens.

Her Majesty’s Revenue and Customs (HMRC) launched retrospective action against offshore users, but has been accused of breaching human rights after threatening to bankrupt those who could not afford a sudden taxation.

But the High Court has ruled that human rights legislation would not be breached if offshore accounts were exposed to backdated tax, claiming that such a move was “in the relevant circumstances proportionate”.

Mr Justice Kenneth Parker, sitting in London, said the absence of any assessment “of how individual taxpayers might be affected financially” could not affect the “proportionality” of the retrospective legislation.

Anti-tax avoidance legislation was introduced by the government under the 2008 Finance Act, with retrospective effect but a self-employed businessman, Robert Huitson, made a legal challenge.

For several years Mr Huitson took advantage of a complicated scheme designed and marketed by Montpelier Tax Consultants (Isle of Man). The firm set up partnerships and trusts through which British business contractors or consultants could channel their income.

Most funds were processed via a family trust which meant no income tax was paid on it, either in the UK or the Isle of Man.

According to reports, the arrangement saved Mr Huitson more than £80,000 in income tax over seven years, cutting his tax rate to as little as 3.5%, but he now faces an overall tax demand in excess of £100,000 relating to the money he paid into the family trust back to 2001.

Documents shown to the court revealed a wealth of other entrepreneurs affected by the ruling, including 57 who say they cannot meet the HMRC’s backdated demands even after selling all their assets.

The judge has refused Mr Huitson’s right to appeal, but his lawyers have vowed to appear before appeal judges due to the severity of the case.

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Written by Andrew Hodges

February 3, 2010 at 6:04 pm

Posted in Comment, LinkedIn

Tagged with ,

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