Nigel Farage probably doesn’t owe tax on his £5m gift

Christopher Harborne, a British-Thai billionaire, gave Nigel Farage £5m in 2024. Genuine gifts are usually tax-free. However, Mr Farage has recently described the £5m as a “reward” for campaigning for Brexit. That raises some complex tax issues, and HMRC may investigate the circumstances of the payment. But, on the facts currently available, our conclusion is that the £5m was probably not taxable.

We would summarise the basic principles broadly like this:

• Gifts can be subject to inheritance tax, but only if the donor is UK domiciled (or, now, long term resident) or the gift is of an asset that was in the UK.
• A gift unconnected to your work is (as a general matter) otherwise not taxable in the UK.
• If there is a connection to your work (past, present or future), and it’s strong enough, then you will be taxed on it in the same way as your work is taxed.
• If you create a document regarding the gift, then (if you are not careful) that document could make the gift taxable as a capital gain.

Applying these to the currently-known facts of the gift to Mr Farage, in our view the gift is probably not taxable. It’s connected to Mr Farage’s historic and current political campaigning activity, and not to any trade, profession, employment or office that he carries on or holds. We say “probably” because there are some judgment calls in the analysis. We would summarise the position like this:

If our understanding of the facts is incorrect or incomplete, tax could arise. In particular:

1. Prior services to the donor. If Mr Farage had previously provided services to Mr Harborne or to any entity or trust in which Mr Harborne is interested, the £5m could be taxable as an employment, professional or trading receipt (in much the same way as a tip to a waiter is taxable). We are not aware of any evidence that Mr Farage in fact provided any such services.
2. Quid pro quo. If Mr Farage provided services to Mr Harborne in connection with the receipt – or if there was any understanding that he would do, refrain from doing, or procure something for Mr Harborne – the payment could be taxable as miscellaneous income, or as a trading or professional receipt, or as employment-related earnings. A mere expectation that Mr Farage would take certain political positions would not be sufficient to make the payment taxable (after all, most political donations are made in the expectation the donee will take certain positions). We are not aware of any evidence that there were any such services, or that there was such an understanding (and Mr Farage has said there was not).
3. Payment to subsidise the recipient’s profession. The £5m could in principle be taxable if it was a payment to enable Mr Farage to maintain the high level of income he received from his non-political career, on the basis that, as an MP, he would have less time to undertake other paid work. There is no evidence this was in fact the purpose, and the evidence we are aware of suggests that Mr Farage in fact maintained a high level of income even after his election.
4. Security costs deducted as a professional expense. If Mr Farage has claimed (or claims in future) a tax deduction for the security costs funded by the £5m, then the matching receipt might be taxable as a trading subsidy. We do not know if Mr Farage has or will claim such a tax deduction; but this is the most plausible basis for a tax charge given the facts as we know them today.
5. Capital gains tax on a chose in action. If Mr Farage and Mr Harborne signed a document that created a legal right for Mr Farage to receive the £5m, the subsequent payment might be treated as a capital sum derived from that right and trigger a capital gain in his hands.

The rest of this article considers these and other potential arguments in detail.

This article was written by seven UK tax specialists and reflects their collective view. It has benefited from subsequent review by a large number of other tax specialists. It addresses only the current UK tax position. We do not consider whether the gift ought to have been declared under the Code of Conduct for Members of Parliament – that is a matter for the Parliamentary Commissioner for Standards. Nor do we offer any view on politics or the ethics of the gift. Our expertise is limited to tax, and that is all this report covers.

The background

Christopher Harborne gave Nigel Farage a £5m gift in 2024.

Mr Harborne, also known by his Thai name Chakrit Sakunkrit, is a British-Thai dual nationality businessman who has been based in Thailand for more than 20 years. His principal business interests are AML Global¹ (aviation fuel), Sherriff Global Group (private aviation) and substantial investments in blockchain and cryptocurrency, including reported links to Tether and Bitfinex.

Mr Harborne has been one of the UK’s largest political donors. He gave around £270,000 to the Conservative Party between 2001 and 2019, £1m to The Office of Boris Johnson Ltd in November 2022, over £6m to the Brexit Party in 2019, and (on current reporting) over £17m to Reform UK.

Mr Harborne is a long-standing, large-scale political ally of Mr Farage. He has been resident in Thailand for more than 20 years and, on the public material, is non-UK resident and (we assume) non-UK domiciled.² On these assumptions, inheritance tax does not arise on the gift.

The relationship between Messrs Farage and Harborne

The publicly available evidence shows:

• A long-running political and donor relationship, including (per The Guardian) Mr Harborne taking a desk at the Brexit Party campaign HQ in 2019 and making multiple million-pound donations to the Brexit Party.
• A social link: Mr Farage is reported to have attended Mr Harborne’s Kamalaya resort gathering in Thailand in 2022.
• Mr Farage and Reform UK have increasingly adopted policies favourable to cryptocurrency, aligning with Mr Harborne’s interests – but this is evidence of alignment, not of paid services.
• Later personal benefits after the gift: £32,000 paid by Mr Harborne for Mr Farage’s US trip in July 2024 and £25,000 for a Maldives flight in February 2026.

What we have not located in the public domain is any evidence that Mr Farage was retained by, invoiced, consulted for, or was paid by Mr Harborne or any of his vehicles (AML Global, Sherriff Global, Tether, Bitfinex) before the £5m gift. The publicly visible trail consists of political donations, proximity, political support, post-election travel funding, and shared positions (particularly in relation to cryptocurrency). As we explain below, that absence is the central reason why the £5m is probably not taxable.

Nor have we found any evidence of additional gifts by Mr Harborne to Mr Farage.³

If evidence emerged that there had been commercial links, then there would be an increased likelihood the £5m was taxable, and the conclusions in this note may change.

The explanations for the gift

Two explanations have been put forward by Mr Farage and Mr Harborne.

The first explanation provided by Mr Farage was that the donation was for personal security. Mr Farage said the funds were to “ensure I can be safe for the rest of my life“, citing repeated physical attacks and a denial of state protection (BBC News; see also The Observer). Mr Harborne is reported to have said he “wasn’t expecting anything in return apart from ensuring his safety“.

The second is that it was a reward for past campaigning for Brexit. Mr Farage told the BBC: “frankly, it was given as a reward for campaigning for Brexit for 27 years“. Mr Harborne has said the gift was made “because of my great admiration for the decades of work he had done to achieve Brexit“. The word “reward” often suggests remuneration and therefore taxable income. However, as we discuss later, a “reward” for political campaigning is very different from a reward for carrying on a taxable trade, profession or employment.

Some people regard the two explanations as contradictory. That is not necessarily the case: Mr Harborne could have given the £5m for the purpose of covering Mr Farage’s security costs, whilst his motivation was gratitude for the Brexit campaigning.

Mr Farage maintains that the gift was “purely private“, “wasn’t political in any sense at all“, “unconditional, non-political, personal“, and that he “cannot be bought by anybody“. The BBC reports that a legal document was signed recording the gift as “unconditional and irrevocable“. Further details of that document are not in the public domain.⁴

The existence of the document may be more relevant to the politics than the tax question. The position in UK tax law is well established: labels do not bind the court; the true legal effect of a transaction is determined on its facts.⁵ That said, the document is evidentially significant: it’s contemporaneous evidence of the parties’ stated intention; it removes any plausible contractual counter-claim by Mr Harborne (i.e. there is nothing in the deed for him to enforce). But if there were a separate side agreement, oral understanding or pattern of conduct outside the four corners of the deed amounting to a quid pro quo, the deed would not preclude a tribunal finding accordingly. There is no public evidence of any such extrinsic arrangement.

We would note that it’s very relevant to ask what Mr Harborne and Mr Farage considered the gift to be for. It’s not generally relevant to ask what other things (unintended by Mr Harborne) the money was used to fund. So the analysis in this article is not affected by whether or not Mr Farage used some of the £5m to buy a house.

When was the gift made?

This is an important question because it’s relevant to determining the purpose of the gift.

On 23 May 2024 Mr Farage publicly stated he would not stand in the general election. On 3 June 2024, Mr Farage announced that he would stand in Clacton and take over as leader of Reform UK.

Mr Farage’s own account is that he received the money in “early 2024” and “before he intended to stand for Parliament“. On that account the gift could not have been an inducement to stand for Parliament.

The Guardian’s original story revealing the gift said “Farage had stated he did not intend to stand as a prospective MP but U-turned in June 2024, within weeks of receiving the personal gift from the Thailand-based businessman”. That suggests the gift was an inducement to stand for Parliament.

Some of the potential ways of taxing the payment are inapplicable if Mr Farage’s timeline is correct. We will note this point each time it’s relevant.

The starting point: gifts are not income

As a general proposition, the UK’s only tax on gifts to individuals⁶ is inheritance tax.⁷ At the time of the gift, inheritance tax only applied to gifts by UK domiciled (or deemed UK domiciled) individuals, or gifts of UK situs property by non-UK domiciled individuals. Such gifts to individuals are “potentially exempt transfers“, chargeable to inheritance tax only if the donor dies within seven years. We assume Mr Harborne was not domiciled in the UK at the time of his gift, and the gifted property was not UK situs, so inheritance tax is not relevant.

Gifts are not generally subject to income tax. The UK has no general “donee tax” on the receipt of gifts – unlike, for example, Germany’s Schenkungsteuer, France’s droits de donation, or US federal gift tax. Everyone knows this in their day-to-day life – gifts to friends and family aren’t usually subject to tax (other than inheritance tax).

The same is in principle true for much larger gifts. However, as a practical matter, HMRC is often suspicious of claims that large payments between non-family members are gifts. Such payments can in reality be hidden remuneration of some kind. So, for example, when Bernie Ecclestone made £40m of “gifts” to his lawyer, HMRC sought to tax the gifts – more on that later.

The technical position is that, for a receipt to be taxable as income there must be a “source” of that income.⁸ A pure voluntary windfall has no source, and so escapes income tax altogether. ⁹

The key principle is therefore: a pure voluntary gift, untethered to any source (trade, profession, employment, office, asset or casual service), is not income.

The following sections go through the analysis in detail, considering whether in fact the payment was attracted to a source, and whether it was truly a gift. We then look at other taxes which (in certain limited cases) could apply.

1. Was it a tip?

This is the scenario most of us are familiar with in our day-to-day life. A tip is a “gift” in the sense that we are under no legal obligation to pay it, but it’s subject to income tax. There is a long line of authority that taxes voluntary receipts that come as a direct consequence of services rendered¹⁰, and/or have the character of a trading or professional receipt.¹¹

Prior to the gift, Mr Farage had been a director of several companies (including Reform 2025 Limited, which was previously named Reform UK Party Ltd and before 18 May 2021 was The Brexit Party Ltd) and a member of the European Parliament.¹² So it might be thought Mr Farage’s second explanation means there is a simple tax answer – this was essentially a “tip” by Mr Harborne for services performed by Mr Farage in his previous roles/offices. In our view, however, that would probably be incorrect. Notwithstanding the range of possible “employers”, the known connection between the £5m and any of those offices or employments is insufficient. The payment must be “from” the employment in the sense of being a reward qua employee.¹³ Mr Harborne was not, realistically, thanking Mr Farage for his performance as a Reform UK director, or his performance as an MEP, but for his campaigning activity over 27 years.

“Brexit campaigning” is not, on any orthodox tax view, a trade or profession.¹⁴ Mr Farage’s identifiable professions in early 2024 were those of broadcaster/commentator (GB News) and public speaker/author. There is some blurring here, because much of Mr Farage’s taxable income will have arisen from trades/professions that followed from his Brexit campaigning – but it’s still important to separate the Brexit campaigning from those trades/professions.¹⁵

We can draw a distinction with the leading recent case on this point, Mullens v HMRC.

Mr Mullens was a solicitor who, having resigned from his City firm in 1999 to work for the Ecclestone family interests, received six payments totalling some £40m between 1999/00 and 2012/13. He treated each as a non-taxable gift; HMRC assessed all of them as income. The First-tier Tribunal held that five of the six payments – around £38.25m – were taxable income (the FTT found they were “Mullens’ income made in return for services he had provided to the Ecclestone family interests“, and this was upheld by the UTT). Only a £187,000 sum used to cover a family holiday to Mauritius was accepted by the Tribunal as a personal gift.¹⁶

The relevance to Mr Farage is twofold. First, Mullens shows that the courts will look through the “gift” label where there is a pre-existing professional relationship that adequately explains the payment. Second, the contrast with Mr Farage is the central point: the decision in Mullens depended on a range of services rendered over many years. There is no public evidence that Mr Farage ever rendered any professional services to Mr Harborne or to any Harborne-controlled vehicle. Without that, Mullens in fact supports the conclusion that the £5m is not taxable (on the facts as we know them).

Why some voluntary payments are not taxable even when connected to a profession or office

Even where there is an employment or profession, the courts have held that a voluntary payment is not a taxable receipt in two cases that may be relevant to our facts:

(a) The personal situation cases

Mr Farage’s initial explanation – that the money was gifted by Harborne out of concern for his physical safety following instances of public harassment (such as the 2019 milkshake incident) – potentially engages caselaw suggesting that a payment made to relieve personal distress is not taxable.

To be taxable as earnings under section 62 ITEPA 2003, a payment must arise from the employment or office, rather than simply being paid to someone who happens to hold that position.¹⁷ If the £5m was strictly a collateral arrangement to protect a high-profile and distressed individual from physical danger, Mr Farage’s legal team could argue that the source of the payment was Mr Harborne’s personal concern for Mr Farage’s well-being, not a taxable remuneration for services rendered.

(b) The testimonial cases

Mr Farage’s second explanation for the £5m – gratitude for 27 years of Brexit campaigning – potentially engages a second line of caselaw where income paid as a “personal mark of esteem” was not taxable.

Even where there is an employment or profession, the courts have repeatedly held that a voluntary payment is not a taxable receipt where the “dominant character” is a “personal mark of esteem or affection” rather than a reward for services. The leading case is Reed v Seymour [1927] AC 554, in which a benefit-match collection paid to a professional cricketer was a “personal gift … in the nature of a testimonial” and not taxable as an emolument of his employment. There were other cases¹⁸ and tax-exempt testimonials became standard practice, to the point that the law was eventually changed to cap the benefit for sportspeople. However the caselaw still applies to those like Mr Farage who are not sportspeople.¹⁹

There are three potential ways the caselaw could be distinguished:

• The fact the testimonial payments were one-off and “exceptional” was always a significant part of the reasoning. If there were other similar gifts from Mr Harborne (possible, but no evidence as things stand) then the payment looks more like an emolument, and this “defence” might well not prevent the £5m being taxable.
• It’s also possible HMRC could distinguish the £5m from the cricketer-and-his-fans paradigm of Reed v Seymour, for example on the basis that this is not a cricket club or group of fans, but a single long-standing political ally.
• HMRC could argue that the dominant character of the £5m is political alignment rather than personal esteem. However that suggests there is no taxable source.

Finally, note that the “personal situation” and “testimonial” arguments are relevant to the question of whether there are taxable “general earnings” but not to e.g. a disguised remuneration charge.

2. Payment as an inducement to stand for election

We will now look outside Mr Farage’s stated grounds for the gift and consider other possibilities.

If – hypothetically – Mr Harborne had said “I will give you £5m for your security, but only if you stand for Parliament in Clacton“, and Mr Farage had taken the money and stood, that would be what is often called a “golden hello”, and might be straightforwardly taxable as an “inducement payment”. It’s important to say at the outset that there is no evidence for this hypothesis, and it contradicts Mr Farage’s stated timeline for the gift of early 2024, and therefore we are covering it for completeness.

The clearest case is Shilton v Wilmshurst [1991] 1 AC 684. Peter Shilton’s former club, Nottingham Forest, paid him £75,000 on condition that he agreed to be transferred to Southampton, because Forest needed Shilton’s agreement in order to collect the £325,000 transfer fee from Southampton. The House of Lords held that the £75,000 was an emolument from Shilton’s new Southampton employment.²⁰

There are, however, serious barriers to this approach:

• Chronology: on Mr Farage’s own account the gift was received before he intended to stand for Parliament, and he changed his mind months after that, therefore clearly not induced by the gift. If, alternatively, the gift was made shortly before Mr Farage’s announcement he would stand, then this objection falls away.
• There is no evidence that the payment was conditional on Mr Farage standing for, or taking up, any office. In Shilton the payment was conditional in fact (no transfer to Southampton, no payment). Here, on the parties’ own evidence, the payment was unconditional. That is not in principle a fatal objection: the courts could find that the parties intended the payment to be an inducement, regardless of how it was documented – but that would require evidence of which we are currently unaware.
• A significant technicality: even if we assume (with no evidence) the agreement was conditional, it would surely not have been conditional on Mr Farage becoming an MP. It would have been conditional on Mr Farage becoming a candidate. A candidate is not an office-holder. This is a serious and perhaps fatal obstacle to applying the inducement caselaw.
• Policy: applying Shilton on these facts would, in effect, draw many donations made to politicians/candidates into the income tax net, as it’s reasonably common for trade unions and others to make donations to support candidates through selections and elections, and in some cases candidates would not stand without those donations.²¹ They are not described as inducements to stand, but as a practical matter they are. HMRC has not, as far as we are aware, historically taxed comparable third-party gifts to politicians on a Shilton basis.

3. Miscellaneous income: ITTOIA 2005, s687

Section 687 ITTOIA 2005 is the “residual charge” which taxes “income from any source that is not charged to income tax under or as a result of any other provision of this Act or any other Act“. Crucially, it still requires a “source”.²²

The danger zone for section 687 is a casual or one-off quid pro quo. The classic authority is Brocklesby v Merricks (1934) 18 TC 576: an architect who did a one-off favour by introducing an estate agent to a client received a share of the resulting profits, and that receipt was held to be taxable as miscellaneous income even though the architect was not carrying on a trade as an introducer. A single casual service can be a source, and we understand that HMRC as a matter of practice applies section 687 in such cases.

There is, however, no evidence that we are aware of that any service was rendered by Mr Farage to Mr Harborne in return for the £5m. Mere political alignment – even strong alignment, and even alignment that Mr Harborne hoped Mr Farage would maintain – is not a “service” in the Brocklesby sense. If, by contrast, HMRC were to find evidence of a discrete one-off quid pro quo(a specific introduction made by Mr Farage, a single appearance at a private event, a particular intervention in a regulatory matter) the analysis could readily switch. The section 687 risk should not be dismissed simply because there is no evidence of “ongoing” services.²³

There is also an important policy point. There is no clean legal or tax distinction between (i) a personal gift to a politician and (ii) a gift earmarked for political campaigning. Many campaigns are run through local parties or companies, but many are run personally by the candidate. Many (or indeed most) political donations are made because the donor believes the candidate is aligned to his or her views. There is nothing exceptional about Mr Harborne giving a donation and Mr Farage’s subsequent support for (for example) reduced tax on cryptocurrency gains (particularly bearing in mind that Mr Harborne would not benefit personally from this change given that he is not subject to UK tax). A general rule taxing personal donations as income would have wide consequences for many political donations.

4. Disguised remuneration: Part 7A ITEPA 2003

Part 7A ITEPA 2003 is a highly technical provision designed to stop people avoiding income tax and National Insurance by having a third party make a payment to an employee. The rules impose PAYE and NIC on “relevant steps” taken by a third party in “connection with” an employment or prospective employment.²⁴

The leading recent authority on “in connection with” is HMRC v Marlborough DP Ltd [2024] UKUT 98 (TCC). Although wide, the words are not unlimited. The Upper Tribunal held:

“We do not think that it was Parliament’s intention to catch loans where the relationship between the loan and the employment was merely incidental or peripheral – merely part of the background, so to speak.

…

The words used by Parliament involve a test of connection not one of causation. … there must be a strong or direct connection between the employment/directorship and the loan“

There are two ways in which the payment might be “in connection with” an employment.

• The Reform UK directorship. Part 7A applies where a “relevant third person” (here, Mr Harborne) takes a “relevant step” in connection with the employment of person “A” (here, Mr Farage) with their employer “B” (here, Reform 2025 Limited). If the £5m were in essence a payment to keep Mr Farage as leader or director of Reform 2025 Limited, Part 7A could in principle apply. The hypothetical “I’ll give you £5m if you keep leading Reform for another five years” would be potentially within s554A. There is, however, no evidence of any such conversation.
• The prospective MP office. Part 7A applies to prospective employment/office. If HMRC could show that the £5m was, in essence, connected with Mr Farage taking up the office of MP, that office could be the relevant employment. There is, again, no evidence of this – furthermore, the approach runs into the “candidate” problem that we discussed in the context of inducement.

On the public facts, neither theory is presently sustainable. The reported reasons for the gift are at best “incidental or peripheral” to the directorship and the prospective MP office in the Marlborough sense. Part 7A is the most fact-sensitive of the income-tax routes and has wide drafting, but on the publicly available facts the “strong or direct connection” is missing.

5. Compensation for, or replacement of, lost earnings

The £5m could be taxable if it was a payment to compensate Mr Farage for, or replace, lost earnings. There is, it must be noted, no evidence that this was the case. But for completeness we will consider the scenario where Mr Farage was concerned that stepping up to frontline politics would mean his earnings would fall significantly, and Mr Harborne’s payment was intended to compensate for that.

Compensation for the loss of, or for surrendering, trading or professional profits can be taxable in the same way as the income it replaces.²⁵

This is therefore superficially a plausible answer if evidence emerges that the real rationale for the payment was compensation for the loss of earnings. There are, however, two significant problems with the approach:

• We are not sure the caselaw is applicable to a payment which (we expect) bears no direct relationship to envisaged earnings. It’s quite unlike the quantified compensation in e.g. Burmah Steam Ship Co.
• Not only is there currently no evidence that replacing lost earnings was the rationale for the gift, but the evidence suggests the opposite: that Mr Farage has continued to undertake lucrative outside work since becoming elected.

6. Falkirk Ice Rink and the security costs

The facts here are unusual, and existing caselaw could be applied in a slightly unusual way.

CIR v Falkirk Ice Rink Ltd [1975] STC 434 held that an unsolicited donation by a curling club to a commercial ice rink, specifically to subsidise the rink’s loss-making curling operations, was a trading receipt: it was given to supplement the company’s trading revenue and ensure the continuation of the trade. Smart v Lincolnshire Sugar Co Ltd 20 TC 643 held that a government subsidy to supplement trading receipts, and preserve the solvency of a company, was taxable.

This principle is not theoretical; in our experience it’s considered by practitioners when voluntary payments are made²⁶, and HMRC’s published manuals suggest it’s applied by HMRC in practice.

The analysis is significantly dependent upon how Mr Farage has treated the security costs that the £5m is said to fund.

Mr Farage very possibly could claim a tax deduction for those costs. There is a specific statutory deduction for security expenditure incurred to meet a “special threat” to a self-employed individual that arises wholly or mainly because of their trade or profession.²⁷

This all suggests that:

• If Mr Farage has claimed (or claims) a tax deduction for the security costs funded by the £5m, on the basis that those costs are part of his profession as broadcaster, commentator and public speaker, then the matching receipt may be, on a Falkirk/Lincolnshire Sugar analysis, a trading subsidy and itself taxable. The £5m would be a payment to supplement the income of the profession and enable it to continue.²⁸
• Conversely, if no deduction is taken, that would be helpful evidence for Mr Farage that the expenditure was personal/political rather than professional. It would not be conclusive: the question would still be the character of the receipt in his hands.
• And of course if in fact the £5m was not used to fund security then this point is of no relevance.

On the currently-known facts, in our view this is the strongest argument HMRC would have to tax the payment – but there are three important caveats:

• To stress again, as a practical matter we think it’s only relevant if Mr Farage has claimed (or claims) a tax deduction for the security costs funded by the £5m. We do not know if that is the case.
• The argument would be strongest to the extent the payment was earmarked for, and actually used on, deductible security expenditure. It would be much weaker for any part not so earmarked or used.
• The argument may fail if Mr Farage’s trade/profession would have continued to solvently fund the security costs even absent the gift. The extent of his outside activities suggests to us that it plausibly would have been solvent regardless. This is an objection to a Falkirk-style charge; it’s unclear if it’s a fatal one.²⁹

7. Capital gains tax

A gift is not subject to capital gains tax for the recipient.³⁰

We have, however, seen cases where a document, like Mr Farage’s, intended to confirm that a payment was “unconditional and irrevocable”, has ended up actually creating a tax charge. Say, for example, the document was drafted so that Mr Harborne agreed to pay £5m unconditionally to Mr Farage, with the payment following subsequently (as opposed to the document simply describing what happens if the payment is made, or describing the parties’ view after the payment had been made). In such a case, the £5m payment could be treated as a capital sum derived from an asset (the asset being the chose in action created by the document) and potentially taxable under section 22 of the Taxation of Chargeable Gains Act 1992.³¹

Tax practitioners know this as a dangerous “bear-trap“. If Mr Farage was caught by it then that would be a rather unfair result caused by unfortunate drafting – but that is no defence to a tax charge. While modern tax law allows HMRC to look past artificial legal structures to the underlying economic reality, this principle is famously asymmetrical: taxpayers are generally stuck with the legal consequences of the documents they actually sign, however poorly drafted.³²

An additional complication is that, if there is a prima facie capital gains tax charge, the HMRC concession in paragraph 11 of ESC D33 may relieve all or part of it on the basis that the right was a private/domestic asset and not a CGT asset acquired for commercial reasons. Following HMRC’s January 2014 revisions, the concession is limited to the first £500,000 of gain in any one case. The legal status of HMRC’s extra-statutory concessions is more constrained following R v HMRC ex p Wilkinson [2005] UKHL 30; HMRC has retained ESC D33 (in its limited form) but did not legislate it, so its application depends on HMRC’s continuing willingness to operate the concession.

8. Other taxes – National Insurance and VAT

If there is an income tax charge then National Insurance may apply.

If re-characterised as a trading or professional receipt, National Insurance at the applicable thresholds and rates would arise on Mr Farage’s self-employed profits. If re-characterised as general earnings of an office or employment, Class 1 NIC (both primary and secondary) would apply; the secondary (employer) NIC liability would fall on the employer (if, broadly speaking, it has a UK presence).³³ If re-characterised under Part 7A, Class 1 NIC mirrors PAYE. If treated as miscellaneous income under ITTOIA 2005, section 687, no NIC arises (section 687 income is not “earnings” for Class 1 NIC purposes nor “profits” for Class 4 NIC purposes).

VAT is a tax on consideration for a supply.³⁴ A “gift” that is not consideration for any identifiable supply by Mr Farage to Mr Harborne is outside the scope of VAT. There is no current evidence of any supply by Mr Farage to Mr Harborne, so (on the current facts) no potential for VAT.

We don’t see a scenario in which National Insurance or VAT would apply but income tax would not. Conversely, in many of the income tax scenarios (e.g. simple remuneration or inducement payment) there would be no VAT, and in some no National Insurance.

Conclusion

On the public facts and on the two explanations advanced by Mr Farage, the £5m payment from Mr Harborne is most naturally characterised as a non-taxable personal gift.³⁵ None of the principal income-tax charging provisions appears engaged on the present evidence. IHT is out of scope on the assumption that Mr Harborne is non-UK resident, non-UK domiciled and not deemed UK domiciled, and that the property gifted was not UK situs. VAT does not arise absent an identifiable supply.

HMRC not infrequently open enquiries when large gifts are made between people who are not related to each other, and it would be unsurprising if they did so in this case. The usual deadline to open an enquiry is a year from the date the tax return is filed. Looking at how that will apply in practice:

• If the gift was made before 6 April 2024, it fell in the 2023/24 tax year. The normal filing deadline for that return was 31 January 2025. If Mr Farage filed on or before that date, HMRC’s ordinary enquiry window will now have closed. That does not necessarily prevent HMRC acting: if Mr Farage’s tax return did not contain enough information to alert HMRC to the nature and size of the gift, HMRC would likely be able to raise a discovery assessment. The ordinary discovery time limit is four years after the end of the relevant tax year – so, for 2023/24, 5 April 2028.³⁶
• If the gift was made on or after 6 April 2024, it fell in the 2024/25 tax year. The normal filing deadline was 31 January 2026. Unless Mr Farage filed very early, HMRC are likely still to be within the ordinary enquiry window.

For tax to arise, material facts would have to be different from those currently stated by Mr Farage. The main factual matters we would expect HMRC to review are:

• Previous gifts or undisclosed commercial links. If there were other large gifts, retainers, introductions, consultancy arrangements, business links, or other payments between Mr Harborne and Mr Farage, that could weaken the personal-gift analysis. We have not found evidence of such links in the public domain.
• Evidence of services or a quid pro quo. If HMRC found evidence that Mr Farage had provided services to Mr Harborne, or to a Harborne-connected business, or that there was any understanding that he would do, refrain from doing, or procure something specific in return for the £5m, the analysis could change significantly. That would be the clearest route to an income tax charge.
• Evidence that the payment replaced lost earnings. If the £5m was in substance compensation for income Mr Farage expected to lose by returning to frontline politics, HMRC may say that the payment took the character of the earnings it replaced. Again, there is currently no public evidence that this was the rationale, and Mr Farage appears to have continued substantial outside work after his election.
• The tax treatment of the security costs. If Mr Farage has claimed, or later claims, a deduction for security expenditure on the basis that it’s incurred for his trade or profession, HMRC may say that the matching funding from Mr Harborne is a taxable trading receipt (but this would probably be limited to the part of the gift earmarked or intended to cover security costs).
• The details of the arrangements between the parties. If the “unconditional and irrevocable” document described by Mr Farage actually created a £5m chose in action, then that could give rise to a capital gains tax charge for Mr Farage.³⁷

Disclosure

Dan Neidle, the founder of Tax Policy Associates, is a member of the Labour Party. Tax Policy Associates has no political affiliation. Our work covers UK tax policy and tax avoidance generally; only a minority of our investigations relate to politicians. Our previous reports suggesting politicians avoided or failed to pay tax investigated Angela Rayner (twice), Keir Starmer, Ian Lavery, Nadhim Zahawi, Richard Tice and Zack Polanski. We have also published reports dismissing allegations that Rishi Sunak and Jeremy Hunt avoided tax.

Many thanks to M and B for initial comments, and to X, T, D, A, C, J and K for the final analysis. Thanks to M (again), L, S, G, H and J for their review of the near-final draft.

Most of our contributors are practising solicitors, barristers or accountants, and so for professional reasons cannot be named. Tax Policy Associates would not exist without their work, and so we always credit all contributors by initial.

Photo © House of Commons, licensed under CC BY-NC-ND 2.0

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