What most multimillionaires know how to do is pay less taxes and protect their wealth.
An undercover filming operation has uncovered that ultra-rich UK residents are being pitched offshore products, purportedly offering legal protection against inheritance tax (IHT) and capital gains tax (CGT).
The revelation emerged from a private event held a week before the general election, where advisers to the ultra-wealthy were briefed by Baker Tilly, an international accounting brand, on how offshore pension schemes could be used to shield significant fortunes from tens of millions of pounds in inheritance taxes.
During the exclusive City of London event, one promoter boasted about a client who had placed £30 million into a pension scheme to protect it from inheritance taxes.
He confidently told an undercover reporter that the government would not legislate to close these schemes down, as ministers have “bigger fish to fry.”
While these schemes are legal, critics argue that such tax avoidance strategies are immoral, depriving the public purse of hundreds of millions of pounds that could otherwise fund essential services.
Labour has vowed to renew its focus on tax avoidance by the wealthy, pledging to ensure everyone pays their fair share as the party grapples with strained public finances and increasing demands to resolve long-standing disputes over public sector pay and benefits.
Chancellor Rachel Reeves is expected to provide more details about the state of the public finances next week, likely paving the way for tax increases.
In June 2024, it was revealed that Labour was considering additional wealth taxes, including changes to CGT and IHT, as potential measures to raise up to £10 billion after the election.
The party has also promised to clamp down on the “non-domicile” regime, which allows individuals to live in the UK without paying tax on their overseas income.
Super-Rich Taught How To Exploit Offshore Tax Loophole
At the event hosted by the Private Client Dining Club, held just days before the general election, advisers to the super-rich were informed about how to exploit a little-known offshore tax loophole.
Stuart Clifford, a principal at Baker Tilly Isle of Man, detailed to an undercover reporter, “My last one I did of these – £30 million… [The client] said … ‘That’s my kids’ money. So let’s protect it from IHT today.’ [The] day he got it – £30 million [went] into [the offshore product]. He’s not doing anything funky. He’s not paying a lot for it, that’s just going through investment managers and what have you.”
Inheritance tax is typically charged at a rate of 40% on amounts exceeding a £325,000 threshold for assets given away to non-spouses or non-civil partners.
This suggests that the Baker Tilly client’s children potentially saved nearly £12 million in taxes.
Baker Tilly Isle of Man declined to disclose the value of assets it had helped clients place into these schemes over the past five years.
However, it stated that the product promoted at the event is an offshore retirement plan known as a qualifying non-UK pension scheme (QNUPS), which is available to UK residents.
This scheme leverages current tax rules that exempt pension assets from certain taxes. Clifford suggested that offshore pensions could help wealthy individuals avoid future taxes on property investments.
“The amount of people who have got property where they are potentially one day sitting on a big capital gains liability – a big inheritance tax liability,” he said.
Clifford predicted that neither Labour nor the Conservatives would change the law to prevent rich individuals from using QNUPS to avoid IHT, as specific rules would need to be altered.
“[It is] UK law, which is why I say I don’t care what the red and blue team do to IHT [after the election]. It isn’t going to change the QNUPS regulations because [QNUPS have] an exemption from whatever [the IHT rule] looks like. It’s that simple.”
Stuart Clifford
Claire Aston, director of the campaign group TaxWatch, commented that for a well-known accountancy firm such as Baker Tilly to be caught on camera saying that the “government won’t be looking at this as they have ‘bigger fish to fry’” is clear evidence that they consider this to have nothing to do with retirement pensions – but is an avoidance scheme for UK inheritance and capital gains tax.
READ ALSO: Minority Invites Dr Bawumia to Debate on Mid-Year Budget Review
