Landmark ruling over tax avoidance scheme used by celebrities
HM Revenue and Customs (HMRC) has won a landmark ruling against a controversial tax avoidance scheme used by the wealthy - netting an expected £325 million in unpaid tax.
About 1,600 people - including celebrities, doctors and judges - are believed to have invested about £1.2 billion in the Liberty scheme between 2005 and 2009.
The arrangement created a tax loss for investors that they could offset against other income.
The Upper Tribunal has now ruled that the scheme, known as Clavis Liberty Fund 1 Limited Partnership, was artificial and uncommercial, with HMRC winning back £18 million from the case.
The department believes the decision could lead to investors having to pay back a total of £325 million from similar schemes.
Penny Ciniewicz, HMRC's director general for customer compliance, said: "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.
"More and more people are coming forward and settling what they owe because they know the game is up.
"Our message is clear - steer clear of tax avoidance schemes or, like Liberty's users, you'll face a hefty consequence."
The scheme, promoted to high earners by Mercury Tax Group, 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 users' tax bills.
Singer Katie Melua was among those to sign up to the Liberty scheme, reportedly putting £850,000 into it - but went on to settle her tax in full with HMRC when it was brought to her attention.
Writing on her website after Liberty hit the headlines in 2014, she said: "From what I can remember in 2008 when the Liberty scheme was presented to me it was not presented as 'an aggressive tax avoidance scheme'.
"It was presented as an 'investment scheme' that had the potential to legally reduce yearly income tax. Totally legal and legit and my accountants and advisers would take care to complete the formalities which included dealing with HMRC. Seemed pretty straight-forward and simple, so I signed up."
She added: "If there is ambiguity in the law then laws should be changed to disallow schemes like this, so that they would never be presented by legitimate tax experts to less experienced people like myself in the first place. Hopefully the debate will lead to positive change for all."