£100m charity tax avoidance scheme defeated at tribunal
A £100m charity tax avoidance scheme similar to the Cup Trust has been defeated at a tax tribunal by HM Revenue & Customs.
According to the judgment handed down this week by the first tier of the tax tribunal, the Bluebox scheme used a method where government bonds were given to a charity which then transferred those bonds to a private trust for the benefit of an individual.
In a test case before the tax tribunal an individual, William Ferguson, made £800,000 in a year. He transferred bonds worth £500,000 to a Northern Irish charity, the Somerton Charitable Trust, which then transferred almost all of the value of the donation to Ferguson’s private trust, the M Trust, in Jersey.
The charity ended up with only 1 per cent of the value of the bonds, but Ferguson claimed around £200,000 in tax relief.
HMRC refused to pay this relief and Ferguson appealed against this fact. The case was heard in December last year in the first-tier tax tribunal by a judge and a lay member, who dismissed the appeal.
“The effect of the composite transaction was that 99 per cent of the appellant’s disposal was made to the M Trust and not to SCT,” the judgment said. “This means that the composite transaction fails to meet the requirement for a disposal of ‘the whole of the beneficial interest… to a charity’ and therefore no relief is available in respect of any part of the appellant’s disposal”.
The case can still be appealed to a higher tribunal.
HMRC said that 60 people had used the scheme had attempted to avoid £45m of tax. More than £100m was channelled through the scheme.
The individuals involved have not had to pay tax on money channelled into the scheme, but will now have to do so unless a further appeal succeeds.
HMRC said three people had already paid £24m of tax, and that it hoped to reclaim another £21m.
Nicky Morgan, financial secretary to the Treasury, said: “The government has provided charitable tax reliefs to encourage people to give to charities. We will not tolerate abuse of these incentives for the purposes of tax avoidance.
“This was another scheme that wasn’t worth investing in and, as well as the fees investors will have paid to the promoters, they will now have to pay the tax owed as well as interest.”
The Cup Trust, which was created by the same firm, NT Advisers, was a charitable tax avoidance scheme registered with the Charity Commission. It received £176m of donations and claimed £46m in tax relief, while potentially entitling scheme users to claim another £56m. This case is still to be decided.
Last year a National Audit Office report revealed that HMRC is involved in disputes over eight tax avoidance schemes involving charities, with 1,800 open cases, and £240m of tax at risk.