Britain's Home-Grown Tax Haven

TAX The UK’s ‘non-dom’ status is meant to shield foreign wealth from tax. But here’s how it also shelters billions in home-grown assets. Britain’s home-grown tax haven BY TOM BERGIN REUTERS/STEFAN WERMUTH REUTERS/STEFAN SPECIAL REPORT 1 BRITISH TAX A HOME-GROWN HAVEN LONDON, MAY 22, 2015 ne hallowed feature of Britain’s fi- nances is a tax break for individu- Oals called “non-domiciled status.” The break, which is more than 200 years old, is designed to attract foreign inves- tors by allowing them to keep wealth they make abroad out of the reach of the British tax authority. Tax specialists say Britain is the only developed country to have such a system. But a Reuters analysis shows that some “non doms,” as they are known, have also found a way to use the status to avoid tax on money made in the United Kingdom. By shifting ownership of their companies offshore, these non doms - including television stars and a former owner of the Harrods department store - have legally moved wealth worth billions of pounds out BRITISH INSTITUTION: When Mohammed Al-Fayed owned Harrods, he controlled it via an offshore of the tax authority’s sight. firm held by a trust. He was a non dom, so the trust was out of the tax authority’s sights. James Caan, Reuters has identified 26 people who below, is another non dom whose business was owned by a trust when he sold it. have either said they are non doms or been REUTERS/TOBY MELVILLE, REUTERS TV identified as such by public officials or business associates. In the past 20 years, 13 of these people have amassed assets in the United Kingdom worth at least 2.6 billion pounds ($4 billion) which they have held billion through offshore structures. These foreign- $4 held UK businesses have generated more Value of UK assets held offshore than 1 billion pounds in gains for their by 13 non doms over the past owners, all of which would escape tax if the 20 years gains were kept offshore. The ownership-shifting technique is Source: Reuters analysis common, accountants say. But it allows non doms to use their status in a way that was not intended. The rule is not meant to business owners don’t have to publish that the United Kingdom.” shelter British assets, Britain’s tax authority they are claiming non-dom status. The finance ministry, which oversees the says in a guidance note. Non doms “will pay Generally speaking, “there is no rational tax authority, said everyone must pay their UK tax on any of your income and gains basis for a system that transfers ownership fair share of taxes, and it plans to crack which arise/accrue in the UK.” Non doms of this UK income abroad,” said Jolyon down on aggressive tax avoidance, includ- can avoid this thanks to a gap in the rules. Maugham, a tax lawyer who has fought ing what it called “abuse of the non-dom The tax authority, which declined com- the tax authority on behalf of individuals rules.” ment for this story, says there are around and companies and advised the opposi- Even when non-dom status is used 114,000 non doms in Britain. It’s difficult tion Labour Party. “This is income that is as intended, it is controversial: All other to know how many have used their status to derived from the UK, so it’s difficult to see British residents pay tax on worldwide in- shield money made in the country, because any basis on which it should not be taxed in come, no matter where they make it. The SPECIAL REPORT 2 BRITISH TAX A HOME-GROWN HAVEN Labour Party promised to axe non-dom status before this month’s election, and Business ‘non-dom’ style other opponents, who include captains of Britain’s non-domiciled status is meant to shield foreign earnings British industry and establishment news- from UK tax. But it also protects home-grown wealth. Here’s how. papers such as the Financial Times, say non doms get an unfair way to avoid taxes. The system’s backers, who include em- ployers’ group the Institute of Directors and free-market think tanks, say the non-dom status attracts foreign talent and money at no cost to the taxpayer. One high-profile businessman who is known to be a non dom is James Caan. His Non-dom sets up Sells UK business to case shows how British taxpayers may in 1 business in UK 2 oﬀshore entity fact be losing out. Caan was born in Pakistan, which al- £££ lows him to claim non-domiciled status in Britain, according to his lawyer. He has become a business guru following his role in “Dragon’s Den,” a television series about business startups, and has hosted a business show on CNBC. His best business deci- sion, he has told several newspapers, was to found a recruitment consultancy in 1985. Builds UK business. Books No tax is owed in UK He set up the company, Alexander 34profits and gains oﬀshore unless profits are remitted Mann, in “a glorified broom cupboard” in London’s Mayfair and built it, through hard Source: Reuters C.Inton/Reuters Graphics work and an eye for changes in corporate hiring needs, into one of Britain’s biggest talent acquisition and management services groups. At the turn of the millennium, he It was the trust that sold Alexander added, the effective rate would have been sold the company - which made more than Mann. Lawyers for Caan said he did not around 10 percent; companies in which the 98 percent of its sales in Britain - to a pri- control the trust, and there were several offshore trust had invested had since gener- vate equity group. It was “the height of the beneficiaries to it. Nonetheless, as a result ated more than 50 million pounds in UK market,” he said later. of that move, Caan himself owed no tax on tax. At the time of the sale, Alexander Mann money he made on the deal - although he TRUSTS was worth 130 million pounds, Caan said may have been liable for tax on any money in a 2013 interview, although his lawyer he brought back to Britain for personal The non-dom idea stems from an 18th- told Reuters the figure may not be reli- purposes. century sense of fair play, its proponents say. able. After the deal, Caan said, he did not If Caan had been a normal UK resident, The tax break helped colonial plantation- have to work again. “I took up flying planes, the tax authority would have had the power owners, as well as aristocrats fleeing the went back to school and bought a yacht,” he to look through this offshore trust and tax revolution in France, to shield their foreign was quoted as saying in 2009. his capital gain. But as Caan is a non dom, interests from tax, according to Edward Before Caan sold, he did something the trust was – and remains - legally ex- Troup, deputy head of Her Majesty’s perfectly legal which would have implica- cluded from the tax authority’s sights. Revenue and Customs (HMRC), the UK’s tions for his tax bill. In 1998, he transferred Caan declined to comment for this sto- tax authority. ownership of his company to a Jersey-based ry. His lawyer said Caan had paid all the tax Until 1914, anyone could choose not to family trust. he owed. At the time of the sale, the lawyer pay tax on overseas income that was not SPECIAL REPORT 3 BRITISH TAX A HOME-GROWN HAVEN sent to Britain. Today, only non doms can. To qualify for non-dom status you have ‘Non dom’ tax gap to be born outside Britain, have a parent born or tax-domiciled outside Britain, or “Non-domiciled” status lets British residents have lived outside Britain yourself for a pe- use offshore trusts to keep profits made on riod. You also have to say you plan to leave British businesses out of reach of the tax Britain in the future, show “personal links” authority. Here are some of the non doms to another country, and may have to pay a who have held assets offshore: fixed annual levy to the tax authority. Since one-third of babies born in Britain • South-Africa born Abe Jaffe built automobile have at least one foreign parent and another dealership Currie Motors, which operates under 12 percent of residents were born outside the slogan “nice people to do business with,” the country, tax advisers say many millions into an operation with turnover of 170 million of people could apply for non-dom status. pounds ($266 million at current rates) before RE-DOMICILED: Lord Michael Ashcroft gave In the Reuters analysis, nine of the 13 he died in 2009. Currie Motors and his British up his non-dom status in 2010. In the decade non doms who held UK assets offshore property interests were held by a Dutch holding before, he held interests worth 50 million pounds have British nationality. Besides Caan, company, Curfin Holdings BV, controlled by via offshore entities. REUTERS/PAUL HACKETT former racing star Jackie Stewart is an- a family trust. The value of Currie Motors and other example of how non-dom status lets the property assets at the time of his death even Britons send British-earned profits was around 124 million pounds, filings show. A or his heirs avoid some taxes if the business offshore.

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