HMRC Shuts Down ‘Liberty’ Tax Avoidance Scheme
HM Revenue and Customs, the UK tax authority, has welcomed a ruling in its favor against a contrived tax avoidance scheme involving an entity in Jersey and the Cayman Islands.
HMRC says it expects that the decision will recover GBP325m in unpaid tax. The decision on the scheme, known as Clavis Liberty Fund 1 Limited Partnership, protected GBP18m of taxpayers’ money but HMRC expects the ruling 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.
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 that 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.
“This is a brilliant victory that will bring in millions of pounds. We have repeatedly warned people about the financial consequences of using tax avoidance schemes. Our message is clear – steer clear of tax avoidance schemes or, like Liberty’s users, you’ll face a hefty consequence.” said Penny Ciniewicz, HMRC’s Director General for Customer Compliance.
