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Taking a Liberty

23 October 2017

HMRC has defeated a tax avoidance scheme used by the wealthy to reduce their tax bills, which the department says will protect £325m in unpaid taxes.

The decision on the scheme, known as Clavis Liberty Fund 1 Limited Partnership, protects £18m of taxpayer money, but it has 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 usersí 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, which was used to reduce usersí tax bills.

The Upper Tribunal endorsed the First-tier Tribunalís decision that the dividend transaction was artificial and not commercial.

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