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  • The Budget 2025 tax calculator

    The Budget 2025 tax calculator

    This online calculator calculates your tax on employment, self-employed or partnership income, and shows how it changes under a variety of Budget proposals. It charts the marginal and effective tax rate at all income levels, and shows where you fall on that chart.

    The charts show that teachers, doctors and others earning fairly ordinary salaries can face marginal tax rates of more than 60%, and sometimes approaching 80%. We believe it’s inequitable and holds back growth. Rachel Reeves should commit to ending these anomalies.

    This Government was elected on a platform of kickstarting economic growth. It has a large majority, and probably four years until the next election. It’s a rare chance for real pro-growth tax reform. That’s all the more necessary if we are going to see tax rises.

    It’s important to note: the point of the tax calculator is not that UK tax rates are currently too high. Overall they are not; they’re low by international standards, and the average worker pays less tax on income than their equivalents in other countries. But there are earning levels at which there are anomalously high rates, and that is damaging.

    The tax calculator

    You can view the calculator full screen here.

    A quick guide:

    When it starts up, the chart shows the current UK tax marginal rates at each income point. You can enter your income and see your tax result, and your position on the chart. You can use the “tax rules” dropdown to select:

    The app will then chart the marginal rate at each income point or (if you change the top left dropdown) give you a chart of effective rate at each income point, or net income vs gross income.

    You can select a scenario in the “compare against” dropdown, and that scenario will be added to the chart (dashed red line).

    The options

    You can select options that demonstrate some of the features in our tax system that create anomalously high marginal tax rates:

    • You can choose whether you’re employed, self-employed, retired, a contractor paid under “IR35“, or a member of a partnership/LLP.
    • Once you increase “number of children” above zero, you see the effect of child benefit. This increases the income of anyone with children under 16 (or under 20 if in approved education or training) but, once their income (or that of a cohabiting partner) hits £60k, the “high income child benefit charge” (HICBC) starts to claw child benefit back. It’s completely gone by £80k. That creates a very high marginal tax rate at £60k – 58% for someone with three children, and 67% if they also have a student loan.
    • If you add “childcare subsidy” you can model the impact of the tax-free childcare scheme and the various Government free childcare hours schemes in England, Wales and Scotland. These schemes are generous – potentially worth £20k in some cases, and we classify that as increasing your income (and therefore reducing your effective tax rate). However the schemes are completely withdrawn if income exceeds £100k (with the exception of the Scottish scheme). That creates the very odd effect that someone using the schemes becomes worse off if their income exceeds £100k – a marginal tax rate well in excess of 100%.
    • The “student loan” option applies the standard 9% student loan repayment rate (or you can select other rates in the dropdown).
    • The “marriage allowance” option deals with the small element of personal allowance sharing between married couples.
    • And anyone earning £100k sees their tax-free personal allowance reduced, by £1 for every £2 of income above £100k. This isn’t an option – it happens automatically. It means the marginal rate at £100k is 62%, falling back to the “correct” amount of 47% once the personal allowance is completely gone at £125,140.

    What the marginal rates mean

    The “marginal tax rate” is the percentage of tax you’ll pay on the next pound you earn. is withdrawn results in nonsensical marginal rates It’s therefore critical because it impacts your incentive to earn that pound. It’s obvious that if 100% is taxed you’ll have a lower incentive than if 0% is taxed; and the.same is true for 70% vs 40%. We’ve written a fuller explanation of the precise meaning of “marginal tax rate”, and why it’s so important.

    If you turn on all the “options” you’ll see a series of very high marginal rates across the UK, over 70% in some cases. The rates are even higher in Scotland (the red dashed line):

    The marginal rate from the marriage allowance and the childcare subsidies is so high that it goes off the above chart. So it’s clearer if we plot net income vs gross income:

    The marriage allowance is so small that it’s invisible in this chart (it’s a largely pointless piece of complication). The withdrawal of childcare subsidies, however, completely distorts the picture. When you earn £100k, you immediately lose these. So in this chart, with someone receiving £20k-worth of childcare subsidies, they are suddenly £20k worse off when they earn £100k, and their net income doesn’t recover to where it was until their gross income reaches £152k (or, in Scotland, £170k.)

    There are other minor effects which, for simplicity, our calculator does not cover.

    One issue not covered by the calculator is the high marginal rates impacting working people receiving benefits (other than child benefit). This improved significantly after the introduction of universal credit, but problems remain, particularly around the interaction with child benefit. Benefits are outside our expertise and therefore are not covered by this article or our calculator.

    What are the real world effects?

    Thanks to a recent series of Freedom of Information Act applications by Tom Whipple at The Times, we can see that large numbers of people take steps to avoid these high marginal rates:

    That pronounced “bump” at £100k represents approximately 32,000 taxpayers managing their income so it doesn’t go past £100k. However it’s important to recognise that counting the people in the “bump” gives us a lower bound: there will be others who hold back their income above or below the £100k point, but outside the visible “bump”. There will be others who respond to the incentives by ceasing working altogether or leaving the UK (anecdotally there are large numbers of professionals moving to Dubai; however there’s no hard evidence as to the scale of the effect).

    This, however, is nothing compared to the “bump” at £50k – there are 230,000 taxpayers there. Again this is a lower bound.

    This is from tax year 2022-23 when the child benefit clawback was at £50k – this will be an important cause of the bump, but we expect there are three others.

    These “bumps” reflect broadly three taxpayers responses:

    • No change in economic activity (i.e. working hours) but taking steps to legally reduce taxable income. The most obvious example is making additional pension contributions and/or salary sacrifice. Additional pension contributions are an attractive option to people nearing retirement, but unattractive for people at the start of their careers.
    • No change in economic activity but tax evasion – i.e. self-employed people artificially depressing their income by not declaring income over £50k to HMRC.
    • Actually reducing their income – for example self-employed contractors turning away work, or employed staff working fewer hours (or even, in at least three cases we’ve heard of, refusing promotions).

    Both outcomes reduce the tax people are paying. However the second outcome has an obvious wider effect – it’s reducing the supply of labour.

    We’ve heard anecdotally from managers unable to persuade staff to work more hours, or return to work full time – it’s a particular problem for hospital managers, as junior consultants’ pay is within the £100k “trap”.

    But it’s important not to just focus on the impact on jobs that we might think are of particular societal importance.

    It’s also problematic if an accountant or estate agent turns away work because of high marginal rates – it represents lost economic growth and lost tax revenue. It also makes people miserable.

    Inflation and frozen thresholds mean the problem is getting worse each year – the data The Times obtained shows much larger “bumps” in 2022/23 compared to 2021/22. So 2025/26 will be considerably worse:

    What’s the solution?

    These problems are getting worse over time, as fiscal drag takes more and more people into the thresholds that trigger these high marginal rates.

    When Gordon Brown introduced the personal allowance taper in 2009, only 2% of taxpayers earned £100,000; by 2026/27 about 6% of taxpayers will. When George Osborne introduced child benefit clawback a year later, only 8% of taxpayers earned £50,000; by 2026/27 about 17% of taxpayers will earn £60,000.

    This creates a double problem. First, the economic distortions created by the high marginal rates start to impact into mainstream occupations (doctors, teachers). Second, the revenues raised by the marginal rates are now so great that they become hard to repeal.

    Ending the high marginal rates in one Budget is, therefore, not realistic – particularly in the current fiscal environment. The cost of making child benefit, the personal allowance, and childcare subsidies universal, would be expensive (somewhere between £5-10bn, depending on your assumptions). The obvious way of funding this – increasing income tax on high earners, appears to have been ruled out.

    We would suggest five modest steps:

    • An acknowledgment that the top marginal rates are damagingly high, and that the Government will take steps to reduce them when economic circumstances permit.
    • Some immediate easing of the worst effects, at minimal cost to the Exchequer, for example by smoothing out the personal allowance taper over a longer stretch of income, therefore reducing the top marginal rate, and slightly increasing the additional rate so that the measure is revenue-neutral overall.
    • A commitment to uprate the thresholds for clawback of child benefit, personal allowance and childcare subsidy in line with earnings growth or inflation.
    • A commitment that no steps will be taken to make the high marginal rates worse, or create new ones.
    • A new rule that Budgets will be accompanied by an OBR scoring of the highest income tax marginal rates before and after the Budget.

    There’s a coherent political case for people on high incomes paying higher tax (whether we agree with it or not). There is no coherent case for people earning £60k, or £100k, to pay a higher marginal rate than someone earning £1m. It’s inequitable and economically damaging. Ms Reeves should call time on high marginal rates.

    Code

    The code for the calculator is available here. If you want to experiment with different rates you can download all the files and run “index.html” locally. You can then edit “UK_marginal_tax_datasets.json” and add different scenarios.

    The data showing the “bumps” is available here. Many thanks to The Times for sharing it with us, and letting us publish it.

    Footnotes

    1. Please note that the calculator is intended to illustrate tax policy. It is not designed to actually calculate your tax for your tax return, and should not be used for that purpose. ↩︎

    2. Note there is no limit on how many children you can have for child benefit purposes – and that produces some extremely high marginal rates if you select e.g. six children. ↩︎

    3. The way the childcare free hours schemes work is complex and varies considerably from individual-to-individual – the calculator doesn’t attempt to provide a detailed analysis but simply lets you enter the amount of overall subsidy. ↩︎

    4. Which provides up to 1140 hours of free childcare. This isn’t means-tested. However the tax-free childcare scheme is means tested, even in Scotland. ↩︎

    5. It can be expressed as 2,000,000% if we look at the loss of income for someone with £20k of free childcare who was earning £100k but receives a £1 pay rise. However in reality the concept of a marginal tax rate has little meaning in such circumstances. ↩︎

    6. Noting of course that Scottish students don’t have to pay tuition when studying at Scottish universities, so their student loans will be much lower. The full rate is really only relevant to graduates who studied elsewhere in the UK and then move to Scotland. ↩︎

    7. The calculator calculates your marginal rate over £100 rather than £1. That’s necessary because the personal allowance taper reduces the personal allowance by £1 for every £2 of income over £100k. If the marginal rate is calculated over £1 then it produces a different result for even numbers than odd numbers, which doesn’t make sense. The choice of £100 is arbitrary, but has no effect other than to change the (essentially meaningless) childcare subsidy marginal rate. ↩︎

    8. Although the Scottish childcare scheme is less generous and so this problem is usually less extreme in Scotland. ↩︎

    9. The £1,000 personal savings allowance drops to £500 once you hit the higher rate band, and to zero once you hit the additional rate band. The £5,000 starting rate for savings tapers out, but slowly, and so it just somewhat increases the marginal rate – it’s also less relevant for most people. ↩︎

    10. First, people responding to the increased marginal rate of the higher rate tax band – but this effect should be small (when the marginal rate rises from 28% to 42% that means take-home pay on the next pound is reducing by about 20%). Second, people irrationally responding to the higher rate band – we found evidence that a large number of people believe that when you cross the higher rate threshold, you pay a higher rate of tax on all your income. Third, owners of small/micro businesses whose income fluctuates year-by-year managing the profits they take out so they don’t cross the higher rate threshold. It should be possible to definitively establish the impact of child benefit clawback when we obtain data on 2024/25, the first year when the child benefit clawback threshold was moved to £60k. ↩︎

    11. It ought to be possible to check the extent of this by comparing the data for taxpayers on PAYE with other taxpayers, i.e. because tax evasion is not generally practicable for people on PAYE. A more sophisticated analysis would look at the way reported taxable income changes over time, as the income increases and as it decreases. ↩︎

    12. Particularly when the economy is running at very little spare capacity; it would be different if there was high unemployment/plenty of spare capacity, because the work that was turned away would (at least in theory, in the long term) be undertaken by others ↩︎

    13. Data from the HMRC percentile stats, uprated for post-2022 inflation. ↩︎

  • Douglas Barrowman and Michelle Mone may have avoided tax on their £65m PPE profits

    Douglas Barrowman and Michelle Mone may have avoided tax on their £65m PPE profits

    During the pandemic, Douglas Barrowman’s company, PPE Medpro, sold £200 million of PPE to the Government. It made £65m profit, which went into trusts benefiting Barrowman and Mone’s families. Most of the PPE was later ruled to breach sterility standards but, rather than repay the money, Barrowman put PPE Medpro into administration.

    New documents show HMRC is now claiming £39 million in tax, in addition to the £122m (plus interest) owed to the Government for the faulty PPE. We think we know why.

    Barrowman companies have previously run aggressive tax avoidance schemes and, when they failed, entered administration so that no tax was paid. The evidence suggests he may have done the same again – using a scheme to avoid tax on the £65m, and an administration to ensure that any HMRC challenge is pointless.

    However new rules mean that this may not be the end of the story. HMRC may be able to recover the £39m from Barrowman personally.

    Barrowman’s history of selling avoidance schemes

    Barrowman styles himself as an entrepreneur. In reality, most of his money was made from selling highly aggressive tax avoidance schemes. When, inevitably, HMRC cracked down on the schemes, his clients were left with huge liabilities, many were financially ruined, and four died by suicide.

    We believe there is evidence that some of these schemes involved deception: of HMRC, his own clients and his commercial counterparties, and we’ve called for this to be investigated as potential fraud.

    As well as selling failed avoidance schemes, Barrowman’s companies have a history of disregarding their legal obligations. Two Barrowman companies unlawfully failed to disclose their tax avoidance schemes to HMRC. One of these companies then unlawfully failed to comply with an HMRC information request. And Barrowman continues to unlawfully hide his ownership of companies – he has admitted lying about concealing his ownership of PPE Medpro, but the company’s records still fail to record Barrowman as the beneficial owner.

    Barrowman’s history of avoiding tax himself

    We know about at least one previous case where Barrowman made a profit from a transaction, avoided UK tax on that transaction, and then put the company into administration before HMRC could challenge the arrangements.

    In July 2008, a Spanish company called B3 Cable Solutions made a €6.3m payment to a UK company, Axis Ventura Limited. That payment was intended to be tax-deductible, reducing B3 Cable Solution’s Spanish corporate tax bill by €1.6m (and the Spanish tax authorities challenged this.) Axis Ventura Limited then proceeded to avoid UK tax on the €6.3m it received. It paid all the money to an employee benefit trust, which made loans to directors/employees and/or their dependents. We expect neither the company nor the beneficiaries of the loans paid any tax on the loans.

    Barrowman’s history of walking away from the consequences

    After extracting their cash from the company, without paying any tax, Axis Ventura Limited was put into administration.

    In other words, Barrowman and his team walked away from Axis Ventura Limited – winding it up with no cash, in circumstances where it was in my view likely that HMRC would raise an enquiry and seek to recover tax, and it is (at the very least) plausible Barrowman and the others involved knew that they would. The directors nevertheless signed a declaration of solvency.

    This is a classic way to eliminate all risk of tax avoidance. You run your tax avoidance scheme in a company without many assets, make sure you have documentation showing that you believed the avoidance worked, and then wind up the company afterwards, making any HMRC enquiry pointless. It’s sometimes called a “bottom of the harbour” scheme.There are rules enabling HMRC to go after shareholders in some circumstances but those in existence in 2008 didn’t apply to PAYE. There were other rules potentially applicable; we assume they were not used.

    In the event, HMRC assessed the company to owe £1.4m of tax, but it doesn’t look like they were ever able to recover this.

    As is typical of Barrowman, he almost, but not quite, denied any involvement in Axis Ventura Limited.

    This is not the only case where a Barrowman-linked company avoided tax and was then put into insolvency. AML Tax (UK) Limited, a company used to sell the doomed contractor tax avoidance schemes, owed £159k of tax and penalties: it made two tax appeals and, when it lost, went into insolvency, never paying a penny.

    Is that what Barrowman did with PPE Medpro?

    It’s been reported that PPE Medpro made a £65m profit, which ultimately ended up in trusts and companies controlled by Barrowman.

    A normal company in PPE Medpro’s position would have paid corporation tax of around £12m (19% of £65m) and then paid a dividend of the remaining £53m to its shareholders.

    There’s no sign of that in PPE Medpro’s accounts, and it seems unlikely that is what happened. PPE Medpro’s administrators just published a report, which, says:

    “A review of the Company’s bank statements reflects a small number of entities that have received the vast majority of funds from the Company’s bank account.
    Information requests have been issued to third parties who appear to have relevant information and/ or documentation which will aid in this review. No further information can be provided at this time whilst investigations remain ongoing.    ”

    That, plus Barrowman’s history, suggests to us that no dividend was paid, and instead payments were made to companies/trusts. That is one of the scenarios we discussed when we first looked at PPE Medpro’s accounts.

    The administrators report says HMRC claims to be owed £39m. What could be the reasons for this?

    £39m is a lot more than the £12m of corporation tax we’d expect PPE Medpro to pay. But what if PPE Medpro did something similar to Axis Ventura Limited, but on a larger scale?

    We would speculate, based on the past actions of Barrowman entities, that the facts could have been something like this:

    • Barrowman acted as a shadow director of PPE Medpro Ltd – someone who isn’t officially a director, but acts as one, and is therefore regarded as a director by the Companies Act.
    • PPE Medpro extracted its profits as a £65m payment to an entity. This was, in essence, a means of providing a reward to Barrowman.
    • That entity then made an on-payment to a trust or other entity chosen by Barrowman.
    • PPE Medpro claimed the £65m payment was deductible, meaning it had no corporation tax liability, and no other entity or person paid tax on the amount.

    That would be a typical Barrowman avoidance scheme. There would probably be other elements, intended to defeat the relevant anti-avoidance rules; but the history of the last 25 years is that such schemes inevitably fail in the courts.

    The consequence for PPE Medpro of the scheme failing would be:

    • PAYE income tax at 45% = £29m
    • Employee national insurance: at 2% = £1m
    • Employer national insurance at 13.8% = £9m

    That totals £39m. It’s quite the coincidence that’s the same number HMRC is claiming.

    Likely it’s not as simple as this – the actual profit may be smaller, and we’d expect HMRC to charge interest. But this for now is our best guess as to what the £39m represents.

    It’s important to say that this is informed speculation. We do not know that this is what happened. It is possible that Barrowman paid the corporation tax in full. We haven’t asked Barrowman’s lawyers for comment because he has a history of instructing his lawyers to lie to the media.

    Will Barrowman get away with it again?

    It’s not 2008. It’s harder for people to strip assets from companies using tax avoidance schemes and then walk away.

    Under the “joint and several liability notice” rules, introduced in 2020, shadow directors and others can be jointly and severally liable if a company avoids or evades tax and then becomes insolvent.

    We would expect HMRC is considering whether and how to apply these rules to PPE Medpro.

    Many thanks to K for accounting input, C for insolvency law advice, and M for his remuneration tax expertise.

    Footnotes

    1. The Government had previously warned that remuneration avoidance schemes would be subject to retrospective liability. This is what happened. Barrowman’s companies failed to pass this critical warning to their clients; in any event the schemes were technically hopeless (and retrospective legislation was employed because the sheer number of schemes meant that individually challenging them was impracticable). Our view is that it’s fair to blame HMRC for not cracking down on the schemes at an early stage, but ultimate responsibility for mis-selling technically hopeless avoidance schemes rests with Barrowman and other promoters. We’ve more on the history here. ↩︎

    2. This is a recurring theme. AML Tax (UK) Ltd, the tax that breached the DOTAS and information notice rules, never recorded Barrowman as its beneficial owner. The court appointed liquidator thought that he was the true beneficial owner. ↩︎

    3. They prosecuted Barrowman and others for tax fraud; Barrowman and the others were cleared; we don’t know the outcome from a Spanish civil tax perspective, but the Spanish tax advisers we spoke to have said that the reported remarks of the judges imply that a deduction was not in fact available. ↩︎

    4. We know about the EBT from the 2008 accounts, which include a curious reference to a £61,000 investment “previously held on the balance sheet [which] was not owned by the company” – we don’t know what that could mean. ↩︎

    5. That said, it’s not clear how the company obtained a deduction given Schedule 22 FA 2003 and Part 12 CTA – possibly there was some additional structuring here that’s not visible in the accounts of the liquidator’s report. Given the history of Barrowman’s companies, it’s unlikely they just forgot about the point – there would have been some “structuring” intended to defeat these rules, albeit the kind of “structuring” that hasn’t succeeded in any UK court decision for many years. We don’t believe it’s legitimate to plan your taxes on a basis that the courts have repeatedly rejected. ↩︎

    6. This was in our view clearly tax avoidance. The intention of Parliament was that people pay tax on their remuneration. Recasting that remuneration in the form of a “loan” (scare quotes because few if any of these loans were intended to be repaid) subverts that intention. Nevertheless, a surprising number of people at the time thought that the EBT/loan structure “worked”, including a series of tax tribunals, and it took a decision of the Inner House of the Court of Session (broadly the Scottish equivalent of the Court of Appeal) and then the Supreme Court to reach the sensible and obvious conclusion that payments to EBTs were “earnings” and should have been subject to PAYE. We wrote about some of the history of these schemes here, but it’s important to note that those tribunals, which found in favour of the schemes did so on the basis of an understanding that the loans were intended to be repaid. That understanding was in most cases based on deceit from scheme promoters and users – the planning only makes sense in most cases if the loan is not intended to be repaid, and in almost no cases were loans actually repaid. ↩︎

    7. Although strictly that term relates to a practice in Australia where there was no tax avoidance – just asset-stripping a company and leaving it to go bust with unpaid tax. We don’t normally recommend Wikipedia articles, but this is a good one. ↩︎

    8. The liquidation converted into an insolvent liquidation in 2015. HMRC kept the insolvency going for years, even though the company had no assets – the only reason we can think of for HMRC to take such a step would be because they were looking into whether they could recover some of the £1.4m from Barrowman and other current/former shareholders and directors. The insolvency finally concluded in July 2021, with the company wound up, still owing £1.4m to HMRC. ↩︎

    9. This all follows the established pattern: a company associated with Barrowman does something questionable, and he denies being a shareholder or director. In at least two cases (PPE Medpro and Vantage Options Limited) we know those denials were lies. In those cases the apparent shareholder was actually a trustee of a trust which was (in practice if not in legal theory) controlled by Barrowman. ↩︎

    10. Here’s what he doesn’t deny: being the ultimate beneficial owner and the person who ultimately controls the company. We asked his lawyers last year if they would comment; they declined. ↩︎

    11. Until 28 March 2008, Barrowman was a director and shareholder of Axis. The other director was (and remains) Timothy Eve, deputy chairman of Barrowman’s Knox business. After Barrowman stepped down, Michael Walton and Mark Price Williams became directors, and Paul Ruocco became the shareholder. Williams and Ruocco are frequent Barrowman associates. Walton was the original owner of Tri-Wire, a company acquired by B3 Cable. From April 2016, the “person with significant control” of Axis should have been registered. But nobody was listed as the PSC, not even Paul Ruocco, who held all the shares. That kind of non-compliance is typical for Barrowman-linked companies.

      So whilst we can’t know for sure who was really controlling Axis Ventura Limited, the individuals involved, the non-denial, Barrowman’s past behaviour, and the existence of the prosecution, all suggest that Barrowman was controlling or at least influencing the company even after he ceased to be a shareholder. ↩︎

    12. PPE Medpro was never owned by Barrowman, or another Barrowman company. Its sole shareholder has always been a Barrowman employee. Barrowman has admitted that he’s the ultimate beneficial owner of PPE Medpro, but PPE Medpro’s Companies House entry claims that these employees are the sole beneficial owners. That seems likely to be untrue, and indeed a criminal offence. We expect in reality the named Barrowman employees have owned PPE Medpro as trustees of a trust. ↩︎

    13. There were originally joint administrators, Mazars and Clarke Bell. Clarke Bell recently resigned; we don’t know why. ↩︎

    14. The report also identifies that the directors say HMRC owes them £948k. This could be VAT. PPE Medpro wasn’t required to account for VAT on its sales of PPE because, at the time, PPE was zero-rated. If PPE Medpro incurred VATable costs (e.g. legal fees) then ordinarily it could have been able to recover the costs. ↩︎

    15. And also – critically – by remuneration tax anti-avoidance rules, which treat shadow directors in the same way as directors. ↩︎

    16. It’s also possible that PPE Medpro’s administrators will be able to recover tax from Barrowman or other persons to whom payments were made. Some insolvency practitioners have been successful in recovering tax from directors after HMRC pursued failed avoidance schemes. Whilst the administrators of PPE Medpro were appointed by a Barrowman entity, they owe duties to creditors generally, and if they don’t act in accordance with those duties then a court can require them to act fairly, or even remove them. ↩︎

  • Council tax on ‘expensive homes’ – but most of the money comes from the not-so-rich

    Council tax on ‘expensive homes’ – but most of the money comes from the not-so-rich

    The FT has reported that Rachel Reeves is planning a “Budget tax raid on the owners of expensive homes”, expected to raise around £4bn. But less than a 20% of that revenue comes from homes in the top council tax band, while roughly 80% comes from the much larger group of homes in the second-highest band.

    We’ve built an online calculator where you can test different council tax changes, so you can see how small changes affect total revenue – and what they mean for individual taxpayers.

    This is an update of our previous article, which looked only at changes to the top band. And there’s more here, from Chaminda Jayanetti at Politics Home looking at the regional unfairness that would be created by increasing Band G and Band H.

    How much is raised? And from whom?

    Council tax is based on 1991 property values, divided into eight bands from A to H. Band H is the highest – roughly homes now worth over £1.5 million – and Band G the next, typically £750k – £1.5 million.

    This calculator lets you experiment applying different rates to Band G and Band H (you can view it full screen here):

    Note that all figures here are for England. Scottish and Welsh council tax are devolved, and so the bands are slightly different. If applied across the whole of the UK, expect overall revenues to be 5-10% higher than those shown in the calculator.

    What the calculator shows about the proposal in the FT

    The simplest approach is the one the FT says the Government is considering – doubling council tax for Band G and Band H. You can model this in our calculator by setting the Band G and Band H multipliers to 2.0:

    As the FT says, doubling both bands would raise about £4 billion – but more than three-quarters of that would come from Band G households. In practice, that means families in £750k to £1.5m homes would see their council tax double – an average rise of around £4,000.

    The reason is simple: there are roughly eight times as many homes in Band G as in Band H.

    Band H represents the UK’s 0.6% most valuable homes. Band G represents the next 3.5% most valuable – so we should expect in many cases people living in Band G homes earn £100k+. For those just in this bracket, that means £67k after tax (more if it’s a dual income household). A £4k tax increase is significant for them.

    Council tax liability falls on occupiers – whether homeowners or tenants. In the long term, landlords rather than tenants bear the cost of council tax (because it reduces rents) but in the short-to-medium term all the cost falls on tenants.

    Can we achieve the same result in a fairer way?

    It seems intuitive that we could raise more money by leaving Band G alone, and instead adding new bands at the top.

    You can test this in the calculator by clicking “split band H into new bands”. This creates three new above band H (you can change the values for each band using the slider).

    You’ll see you have to apply an unrealistically high multiplier to these bands (increasing council tax bills five to ten times) to even approach the revenues achieved by a simple doubling of Band G and Band H council tax:

    We can’t realistically expect people in £1.5m homes to pay a £25k council tax bill. This is not a sensible proposal.

    What if we try a mansion tax?

    We can achieve a fairer result if, instead of a multiplier, we apply a “mansion tax” to all the properties in Band H – i.e. a % of property value within the bands. That has a much reduced impact in those at the bottom of the band (say £1.5m to £3m properties) and a much higher impact at the top end.

    You can see the impact of this in the calculator by clicking the “New Band H % tax” button. This then applies the set percentage to all property value within that band (on top of existing council tax).

    However a percentage tax fails to raise as much as a simple doubling of Band G and Band H council tax unless we apply rates approaching and exceeding 2%:

    Rates this high would in our view be unwise. They would be capitalised into property values (i.e. because people pay less for property that carries a liability). We estimate this effect would cause a 20%+ one-off fall in high end property values. This would have two consequences:

    • First, it would reduce SDLT revenues. This will be a large effect because of the disproportionate SDLT revenue from high value property. We estimate SDLT revenue could fall by around £2bn/year.
    • Second, it would be unfair to the current owners, operating in a similar way to a one-off property wealth tax.

    There’s also a practical problem: creating a valuation system for applying a percentage tax to the c150,000 properties over £1.5m would require considerable resources (and take time to create). The council tax banding system was designed to avoid such difficulties.

    So it’s easy to see why the FT says the Government is more drawn towards a simple doubling of rates.

    The fairness problem

    Our view is that it is absolutely fair and right to create new council tax bands at the top end and apply higher rates to them (provided we don’t set the rates so high that we see very significant declines in property value).

    It does not, however, seem fair to greatly increase council tax for people in Band G. People living in Band G properties will often be comfortably off, but are certainly not the “super-wealthy”. In many cases they will have experienced significant tax increases over the previous ten years. It seems particularly unfair if any doubling will be cumulative on the second home premium, which doubles (and, in Wales, triples) the cost of council tax for people with a second home. A 600% premium would be unjust, and the impact on house prices would be so severe as to almost amount to confiscation.

    Why is it that most of the tax increases of the last ten years have been on reasonably high earners and not on the super-rich? The obvious answer is the correct one: it’s much easier to raise large amount of money from them. There is no way to raise £4bn from the super-rich that’s anything like as easy as doubling council tax on moderately high value properties.

    There are, however, relatively simple tax reforms that would raise significant sums from the very wealthy. For example: reforming capital gains tax, or making the previously-announced inheritance tax changes more effective. Or – even better – a wholesale reform of land taxation.

    Methodology

    We set out the methodology and limitations for our council tax calculator in our original article. The underlying sources are Department for Levelling Up, Housing and Communities data for most council tax statistics and Local Government Association data for the 2025/26 figure for each local authority.

    The original calculator only applied to band H. The updated code, covering band G and band H, is available on our GitHub.

    Photo of FT headline (c) The Financial Times Ltd, and reproduced here for purposes of criticism and review.

    Thanks to C for assistance with the modelling.

    Footnotes

    1. The figures in this paragraph, and used in the calculator, are what you get when applying average house price inflation to the 1991 figures. Because they are an average, they will be wrong in many local authorities – and in London and the Southeast the bands are often considerably higher. ↩︎

    2. And then presumably adjusting the local government funding formula so that the benefit goes to central Government. ↩︎

    3. London and the South East have most of the Band H stock. In many other regions, almost no homes were worth £320k in 1991. So, today, there are entire local authorities with zero Band H homes. By contrast, Band G exists everywhere – it’s the top “normal” band in most of the country. ↩︎

    4. See data here. ↩︎

    5. In other words, a 1% rate set for a band between £1.5m and £3m will apply a 1% tax to all the value of a property that falls within £1.5m to £3m. A £1.5m property would pay nothing. A £2m property would pay £5k. A £3m property would pay £15k. ↩︎

    6. There are people who choose to have two modest homes rather than one more expensive home – there is no rational reason for them to pay six times as much council tax. Any such dramatic one-off increase falls on the current owners (i.e. because there is a sudden drop in value). It impacts developers with current ongoing projects (as their expected price will suddenly fall). It deters developers from future projects (because of the possibility this will recur). The argument that the second home premium enables local people to buy is not well supported; in many cases the homes in question will still be out of reach for locals. ↩︎

  • I’m being sued for £8m for a report on tax avoidance

    I’m being sued for £8m for a report on tax avoidance

    I am being personally sued for more than £8m by a barrister, Setu Kamal. I believe this is one of the largest English libel claims ever made.

    Mr Kamal objects to a report we published back in February about a firm called Arka Wealth (which appears to have since gone out of business). In September 2025 he tried (and failed) to obtain an interim injunction against me. Soon afterwards, we received a defamation claim.

    We are not removing the report.

    I won’t be commenting further for now but, in the interests of transparency, I’m publishing the court documents.

    Mr Kamal’s claim is here:

    We are applying to have the claim struck out as a SLAPP (and for other reasons), and, in the alternative, applying for summary judgment and security for costs. Our application is here:

    This is my accompanying witness statement:

    And my lawyer’s witness statement:

    I’m publishing these documents in full because I believe in transparency and open justice, and there’s a legitimate public interest in both SLAPP and tax avoidance. The documents are exactly as filed and served, with only limited redactions.

    I do, unfortunately, have to close comments on this post – but if you have any thoughts, please get in touch.

    Footnotes

    1. The redactions are mostly (1) for privacy, (2) redacting the content of Mr Kamal’s witness statement for his injunction, as CPR 32.12 prohibits publication of witness statements (with certain exceptions). One of those exceptions is where the witness consents, and that’s the basis on which I’m publishing my own statement and that of my solicitor. ↩︎

  • The £2bn lawyer tax – should Rachel Reeves tax LLPs?

    The £2bn lawyer tax – should Rachel Reeves tax LLPs?

    Doctors, lawyers, accountants, fund managers, and other high earning professionals are often members of partnerships and LLPs. They’re not employees – and so there’s no 15% employer national insurance. This creates a big tax saving. The Times is reporting that Rachel Reeves is considering changing this – and that it could raise £2bn.

    UPDATE evening of 22 October: The Times is now reporting that, to avoid hitting GPs, the change would be limited to LLPs and would not affect general partnerships. That would be a serious error which would create unfairness and economic distortion, and open up avoidance opportunities.

    Taxing people differently just because of their choice of legal vehicle is irrational – and there’s certainly a principled justification for equalising the position. It also achieves the political aim of mostly affecting only high earners – around 0.1 % of taxpayers receive 46% of all partnership income, and 98% of the tax raised would come from the highest earning 10% of taxpayers.

    But it’s not without political cost – more reasonably paid professionals (like GPs) would also be affected: the average GP who’s a member of a partnership earns £118k, and would see their take-home pay fall by about £6k (although some of the tax revenues raised by the new measure could be used to fund an increase in GP pay).

    The response of those affected, and the impact on tax revenues and the wider economy, is hard to predict. There are also practical problems, and fairness issues around where precisely the line would be drawn.

    This is certainly something any Chancellor should consider – and there may be ways of squaring the circle, and raising revenue without hitting GPs or creating a series of unfair new anomalies.

    The think tank/academic group CenTax published a detailed report in September analysing HMRC data around LLP/partnership taxation. The £2bn figure comes from their report – which I highly recommend. Note that their data is from 2020 – so realistically all the figures should be uprated by around 15-20% for inflation/wage growth.

    The figures

    This calculator shows how much additional tax would be paid by a partner if the most straightforward version of the proposal were adopted. It also shows how much of that additional tax would be saved if the partnership incorporated. The calculations are local to your PC/phone, and nothing you type is sent over the internet.

    There are worked examples in this spreadsheet.

    This is all very much a quick approximation, and it doesn’t take the many complicating factors into account. Please don’t rely on it for anything more than an illustration of the impact of the proposal.

    The current situation – the doctors

    When someone is employed, their employer applies employer national insurance to their pay packet. So, for example, if a hospital has £118k to pay its doctors, about £16k comes out immediately as employer national insurance. The doctor only ever sees the remaining £100k – and of course pays income tax and employee national insurance on it. He takes home about £70k.

    The doctor never sees that missing £16k, and might be completely unaware of it – but in the long term, evidence shows that he’s paying it (because it reduces his wage).

    Now imagine a doctor who’s a “locum”. They’re often (but not always) taxed as self-employed. There’s no employer’s national insurance. So the doctor is paid the whole £118k. She’s paying more income tax and national insurance (because of the higher gross pay), but ends up taking home around £76k. Our locum is £6k better off than an employed doctor.

    Let’s take a third category – a GP. The £118k figure I’ve been using comes from the CenTax report – they estimate it’s the average earnings of a GP who’s a member of a partnership.

    Most GP practices are set up as partnerships. A traditional partnership is just people working together in business, but many GPs use a more modern entity, a “limited liability partnership” which behaves like a company in most respects but is taxed like a partnership.

    A member of a partnership isn’t an employee and (usually) is taxed in the same way as someone who’s self employed. So a GP will be taxed in the same way as the locum. No employer, and overall she’s £6k better off than an employed doctor.

    This is a very irrational result.

    It looks more irrational when we get to very highly paid professionals.

    Highly paid partners

    Most of the £2bn revenue comes from people earning far higher amounts than the £118k received by the average GP. Around 0.1 % of taxpayers receive 46% of all partnership income.

    This is from the CenTax report:

    Not shown on this table are much less profitable partnerships such as farm partnerships. CenTax proposes an allowance or exemption that prevents them being affected.

    The greatest number (but not the highest earners) are solicitors. CenTax reckons the average income of solicitors who are partners/members of LLPs is £316,000.

    A solicitor whose gross income is £316k currently takes home about £180k. If his income was subject to employer national insurance, he’d take home £158k.

    This is a very big difference. His effective tax rate (i.e. overall tax divided by overall income) has gone up from 43% to 50%. His marginal tax (i.e. the % tax they pay on the next pound he earns) has gone up from 47% to 54%.

    We see more dramatic effects if we go to the largest law firms, where many partners earning well into seven figures.

    A partner earning £2m currently takes home £1,072k. If employer NICs applied, she’d take home £934k – meaning £138k more tax. Her effective tax rate has gone up from 46% to 53% and her marginal tax rate is now 54%.

    This puts our £2m partner in the same position as (say) a trader at a bank where their salary and bonus pot are together £2m. Previously she paid less tax; now she pays the same.

    An important point: the reason law firms are usually structured as partnerships is history rather than tax. Until relatively recently, solicitors were required to practice as partners or sole practitioners. Firms weren’t able to become companies until 1985. Even today, most of the big firms aren’t in practice able to incorporate because, whilst it would be permissible for their English lawyers, it’s not permitted for many of the foreign lawyers they practice with.

    Similarly, auditors (and thus many accountants) historically had to structure as partnerships, and still do in some countries.

    However many professionals absolutely do structure as partnerships for tax purposes. Most fund management businesses – private equity and hedge funds – are structured as LLPs rather than companies. The main, and perhaps only, reason for this is tax. Other businesses are in the same category, e.g. some estate agents and architect firms.

    According to CenTax, the average member of a financial services partnership earns £675,000. There will be some earning ten or twenty times this figure. Someone earning (say) £6m would pay £414k more tax if employer national insurance applied to their pay.

    The arguments for and against

    There are several obvious arguments in favour:

    • If the Chancellor is to stick to her fiscal rules then, absent very large spending cuts, she needs to find additional tax revenue. This is a relatively easy way of taxing high earners.
    • It’s in principle correct that everyone who makes their living from work should be taxed the same way.
    • This are complex rules to stop people disguising employment as LLP membership. Those rules could now be abolished.

    CenTax estimated that imposing employer national insurance on partnership members’ pay would raise around £2bn. Their analysis seems sensible to me – although it’s based on 2020 numbers so the figure today would be around 15-20% higher.

    There are, inevitably, several arguments against.

    Consistency – LLPs

    The second Times article suggests the measure would only apply to LLPs, and not traditional partnerships. That seems hard to justify. One of the most profitable law firms in the country is structured as a traditional partnership, not an LLP. Can it be right they pay less tax because of this historical accident?

    The original CenTax proposal looked at taxing partnerships generally; restricting any change to LLPs would be a bad mistake. Any rule which doesn’t apply to all professional tax-transparent vehicles will be unfair, economically distortive and – inevitably – gamed. We could expect large-scale avoidance, as firms seek to convert into either general partnerships or (more likely) foreign entities that have many of the benefits of LLPs but aren’t subject to the new tax rule. If ever there were sectors willing and able to structure their way out of a tax they don’t those sectors would be it’s accounting firms, law firms, and fund managers.

    The more general consistency problem

    More fundamentally: some lawyers practice as individuals. They wouldn’t pay employer NICs. That seems odd. If LLPs/partnerships result in much more tax than sole traders, we’ll (at the margins) see some people breaking away from firms to set up on their own. And some sole traders that would have gone into partnership, won’t.

    What about barristers? Junior barristers at leading commercial barristers’ chambers can earn up to £360,000 in their first year. Some senior KCs earn ten times that. Barristers aren’t (usually) members of partnerships; but it’s hard to see why a barrister who earns £2m should pay less tax than a solicitor who earns the same.

    This becomes quite hard to fix unless employer national insurance (or something equivalent) is applied to all the self-employed (and see further below).

    Behavioural response

    It’s easy to calculate the “static” revenue from a tax change – it’s just multiplying numbers together.

    Estimating the actual revenue is much more difficult, because you have to take into account the “behavioural response”.

    Here there will be several:

    • Some people will move from LLPs and partnerships to become self-employed consultants (and escape the new tax). Sometimes this would be real. Sometimes this would be artificial avoidance – one could imagine a GP practice or law firm splintering into multiple “consultants” all claiming to be self-employed. New anti-avoidance may be required on top of existing rules.
    • Large law firms practice all over the world. In many cases it’s possible to do much the way work in Dubai as in London. So (at the margins) we will see some members of these firms move from London to Dubai to escape the tax. And not just Dubai – for various reasons, lawyers in many European countries pay lower tax than lawyers in the UK.
    • Some people will work less, because they are less motivated. Conversely, others will work more, because they need to work more hours/years to earn the same amount.
    • Some firms will restructure into companies. The partners/members will become shareholders. On the fact of it this saves just a small amount of tax – my calculations suggest an average GP could save £3k, and even a £2m law firm partner would save only £13k. However in practice it may save more than this, as the companies could retain and reinvest profit. That may even have business and economic advantages.
    • And another response that won’t impact revenue: some of the incidence may be borne by firm employees, e.g. with employed lawyers receiving smaller pay rises than they otherwise would, and some by clients, in the form of increased fees.

    CenTax used historical “elasticity” data to estimate that imposing NICs on partnerships would cause a loss of tax revenue equal to about 20% of the “static” estimate. That feels in the right range.

    The question is whether there would be a wider impact on UK law firms, fund managers etc, beyond just the loss of tax revenue, and perhaps a wider impact on the City and the economy as a whole. I don’t know the answer to that.

    Complication

    There will be, inevitably, complications in how this works. For example:

    • Some of the return received by partners represents remuneration for their labour. Some is a return on capital. There would need to be some mechanic for differentiating between the two, without allowing people to over-allocate their remuneration to a capital return. The return on capital is currently usually quite small; that in part may reflect low risk, but may genuinely be less than it should be.
    • Many of the largest law firms are single partnerships/LLPs, with partners/members all over the world. The new rules would have to only apply to distributions to UK partners/members – and sometimes particularly for US firms) the distributions are significantly of foreign profits which are taxed abroad and not here.
    • Fund management LLPs often stream fund returns as well as what is realistically labour income. Differentiating between the two may not be straightforward.

    How a messy compromise could produce a principled result

    I am not very good at politics, and try not to make political predictions.

    That said: it seems to me there are likely to be few people opposed to the idea of increasing the tax of millionaire lawyers. There may be rather more people opposed to the idea of increasing the tax on GPs. A £6k cut in take-home-pay is likely to go down badly with GPs, particularly when compared with the (net) £2,000 increase they received from the most recent pay deal.

    That raises obvious political questions: but exempting doctors from any new rule would be unprincipled. The Times is suggesting that might be the direction the Government is going, but that would be a serious mistake (for the reasons noted above re. consistency).

    A better answer, suggested by CenTax, is for central Government to increase GP pay, funded by the new tax measure.

    Or a more principled approach – and one which avoids revisiting the doctors’ pay deal – would be to create a per-partner/member exempt amount, set at a level so doctors pay little or no additional tax.

    If the exempt amount were set at the average GP partner pay of £118,000, I estimate this would reduce the yield from about £2bn to about £1bn (calculation on the second tab of the spreadsheet).

    That kind of messy compromise could actually prepare the way for the most principled change of all: applying employer national insurance to all forms of work, employed and self employed. That’s clearly out of the question (at least politically) if we’re talking about the moderately paid self-employed (e.g. tradespeople). But if it’s done with an exempt amount, then suddenly it seems more realistic. We could apply to other forms of income too, such as rent.

    And all this has the laudable side-effect of dealing with the consistency problems identified above. It might even pave the way towards abolishing national insurance altogether – the first step towards abolition is ensuring that everybody pays it.

    Obvious disclosure: I was a partner in a large law firm. I have no economic interest in any law firms today, but it goes without saying I am going to be influenced by my background.

    Front page © News UK / The Times, and excerpted for purposes of criticism and review.

    Footnotes

    1. This is just the latest in a long series of articles reporting on Budget speculation. The speculation is damaging and I wish whoever in the Government is responsible for the leaks would stop. ↩︎

    2. Historically, many people have justified the lower tax on self employed and partners by saying they take more entrepreneurial risk than the employed. That is sometimes true – but not always. An employee in a small start-up is probably taking more entrepreneurial risk than a partner in a large accounting or law firm. And someone starting up a new business through a company will usually be taking much more risk – but their overall effective rate of tax (corporation tax and income tax) is usually much higher than that of a partner in a firm. ↩︎

    3. See page 3 of the CenTax paper. ↩︎

    4. Such as: student loans, childcare subsidies, pensions, return on capital – there are many more. ↩︎

    5. Of course I’m simplifying; there are many other costs of employing people, not least pensions – but the conclusions are the same even if we cater for all the real-world complexity. ↩︎

    6. It’s a surprisingly small difference, given that before tax she was £16k better off. The reason is the high 62% marginal rate on earnings between £100k and £125k. ↩︎

    7. Obvious point: this is not the average earnings of solicitors – most solicitors aren’t partners. ↩︎

    8. That’s because he is paying for the employer national insurance – it reduces his gross wage. You can see the calculations in the spreadsheet. ↩︎

    9. A pedant might say that the employer national insurance isn’t his tax. That’s true in a pure legal sense – it would be the partnership paying the tax. But realistically, and in economic terms, it absolutely is the tax of the partners. ↩︎

    10. The real rates may be higher than this – law firms often have significant non-deductible expenses, which tend to increase the effective and marginal rates beyond what one would expect. ↩︎

    11. On the other hand there would need to be new rules differentiating between professional partnerships and other partnerships, e.g. passive investment partnerships. ↩︎

    12. As partnerships/LLPs can’t reinvest profit without creating “dry” tax hit for partners. ↩︎

    13. I suspect these effects will be small for law firms, given the very international environment they operate in. Associate remuneration has in recent years been heavily driven by the level of associate remuneration in the US; that dynamic seems unlikely to change. Increasing fees may be difficult for areas of work where English lawyers can advise from outside the UK. ↩︎

    14. One solution might be to make the tax apply at the level of UK resident partners/members, so completely differently from normal employer’s national insurance. ↩︎

    15. The disadvantage is that partnership is still a tax saving for people earning less than £118k. ↩︎

  • Criminalising tax avoidance – I’ve changed my mind

    Criminalising tax avoidance – I’ve changed my mind

    We’ve investigated many tax avoidance schemes. None of them had any technical merit – indeed many were closer to tax evasion than tax avoidance. All of the schemes, without exception, should have been disclosed to HMRC under DOTAS – the rules requiring up-front disclosure of tax avoidance schemes. None of them were.

    The whole point of DOTAS was to enable HMRC to catch tax avoidance schemes early, and then either change the law (e.g. if someone found a loophole) or challenge the scheme (if it was just hopeless). In the last fifteen years, the landscape has changed dramatically. Almost all tax avoidance schemes are of the “hopeless” rather than “loophole” variety. And so the only way the promoters can stay in business is by breaking the law and avoiding DOTAS.

    My view is that many promoters are criminals, but criminals who are very hard to prosecute under current law. My view was (and is) that the law should be changed to make prosecution a real possibility. Only then would we be able to deter the rogue promoters. My proposal was that failure to disclose under DOTAS should be a criminal offence, and I was delighted to see this adopted by the Government in the package it published back in the Spring.

    Except I’ve changed my mind – following a series of discussions with HMRC and advisers.

    I changed my mind partly because of two serious problems with the proposal – one that can be fixed, and one that can’t. And partly because two of the other elements in the Government’s package render it unnecessary.

    I discussed these issues at the House of Lords Finance Bill Sub-Committee on Monday (starting at 07:45):

    The problem we can fix

    Many representative bodies have complained that the proposal as it stands is likely to create a chilling effect on ordinary tax advice, or swamp HMRC with unnecessary disclosures – or both.

    DOTAS is complex, and honest tax advisers – who currently “take views” that uncontroversial arrangements aren’t disclosable – won’t be able to be as relaxed when breach of DOTAS is a criminal offence. So some firms might move out of tax advice altogether – a bad thing for business and HMRC alike. Others could respond by disclosing everything out of prudence.

    This is an important criticism, but one that can be addressed without too much difficulty. The answer is to create an “bona fide firm” defence to the criminal offence so that mainstream firms need have no fear that a one-off accident could result in criminal liability.

    Mainstream firms look really different from the promoter firms. Mainstream firms advise varied clients doing varied things, ,and it would be exceptional for any of those things to be caught by DOTAS. The promoter firms typically run a very small number of schemes (often just one), marketed in high volumes.

    So we can create a defence that applies to any firm that can demonstrate that at least 90% of its tax-related business (measured by fee income) relates to bona fide tax advice. Tax advice would be “bona fide” for this purpose if either it relates to an arrangement which is not properly disclosable under DOTAS, or it is disclosable but was properly disclosed.

    I expect every single mainstream firm that provides tax advice, large and small, would be comfortable the defence applied to them, and so would not suffer the chilling effects that concern the CIOT.

    The “chilling effect” problem is therefore not insurmountable.

    The problem that can’t be fixed

    The more challenging issue is that the same complexity that scares normal tax advisers will, perversely, make the actual criminal tax advisers more relaxed.

    Take a look at the judgment in the Hyrax case. This was a low quality tax avoidance scheme which in my view had no reasonable prospect of success. It failed to disclose under DOTAS by running extremely poor arguments that in my view also had no reasonable prospect of success. It still took the Tribunal 56 pages to throw out Hyrax’s appeal.

    The Hyrax judgment shows a KC (who I expect designed the scheme) running a long series of complex but meritless arguments. The Tribunal had no difficulty dismissing them, but arguments like these would be far harder for a jury to evaluate, and could easily create reasonable doubt. That’s particularly the case when promoters have an opinion from a KC who is willing to bless the most far-fetched arguments. Until the Bar gets its house in order, it’s going to be far too easy for a promoter to manufacture an excuse for its actions.

    In the course of the recent consultation, I and other advisers spoke to knowledgeable people at HMRC, and we came away with the distinct impression it might be challenging to present any DOTAS case to a jury. We then spoke to retired HMRC inspectors with experience of tax prosecutions, and then to barristers specialising in “white collar” crime (doing both prosecution and defence work). All of them thought that prosecutions would be problematic – one barrister said the offence might be “unprosecutable”.

    Our team has explored ways that the offence could be made simpler, but unfortunately none seem very workable. The various forms of simplicity we’ve considered all either risk criminalising innocent firms, or present too many loopholes for criminal firms.

    So I’m disappointed to have to conclude that my basic concept of criminalising DOTAS breaches is not viable.

    I’d love to be wrong, and for there to be a way to design an offence that neither criminalises the innocent or lets the guilty off the hook, but I’m not currently seeing it.

    The alternative

    My original thought process was that rogue promoters were breaking the law without consequence, and severe sanctions were required to stop this.

    That’s still my view, but I think the same aim may now be achieved by two other measures in the Spring package:

    Universal stop notices

    HMRC currently has a power to issue a “stop notice” to the promoter of a tax scheme, making further promotion of that tax scheme a criminal offence. The problem is that the people ultimately behind these schemes hide themselves behind trusts, nominee directors and nominee shareholders. HMRC will issue a stop notice to one entity, and the promoter will simply move its business to another (very possibly run by different frontmen). This example in the HMRC consultation document is an accurate reflection of what’s been happening:

    Case Study 1: typical example of a Stop Notice outlining some of the challenges around delays, phoenixism, establishing connections and reissuing anew stop notice Using Real Time Information (RTI) data, Promoter Pis suspected of promoting a disguised remuneration scheme (which pays loans in place of salary) to over 1,000 taxpayers. An AO in HMRC issues a stop notice to promoter P requiring them to stop. HMRC then identify Promoter Q which is promoting a similar scheme to Promoter P’s scheme with over 900 of the taxpayers that were in the previous scheme. HMRC believe that Promoter P and Promoter Q are connected and that a relevant transfer has taken place of Promoter P’s business, either in whole or in part, to Promoter Q. However, HMRC is not able to evidence a connection between the different directors for each of the companies involved in the schemes. In addition, there is no clear evidence which demonstrates a connection to Mr R who has control or influence over one of more of the directors. Without this evidence HMRC are not able to use the transfer legislation and we issue a new stop notice to Promoter Q as HMRC are not able to draw on sufficient evidence to demonstrate that Promoter P has failed to pass on a stop notice. During this time, Promoter Q has managed to promote the scheme for 4 months before a stop notice has been issued and has generated fees of about £1m per month with a tax loss to the Exchequer of £2m per month. When Promoter Q is issued with a stop notice, Mr R transfers the business to Promoter S. As aresult, the cycle begins again. HMRC similarly struggles to find evidence connecting the scheme to Mr R and thereby has to issue a new stop notice to Promoter S. This leaves a gap in which Promoter S continues to run the scheme.

    The Government is proposing to end this game of “whack a mole” with a “universal stop notice“. This would empower HMRC to issue a notice specifying a scheme; no person could then promote or enable that or any similar scheme. Anyone who did would commit a criminal offence, as would any person controlling or influencing them.

    The key question is whether HMRC is able to speedily identify schemes, and HMRC and the Parliamentary drafting team are then able to craft USNs which encompass all the variations of the schemes that the promoters (who are smart and devious) will be able to come up with. If they can, then the USNs should do the job of criminalising the most significant areas of tax avoidance.

    DOTAS penalties

    One of the reasons promoters ignore DOTAS is that it’s hard for HMRC to apply penalties.

    Under the current rules, failing to disclose a tax avoidance scheme under DOTAS can lead to daily penalties of up to £600. These penalties must be imposed by the Tax Tribunal on application by HMRC. If the failure continues, HMRC can apply again for higher “continuing” daily penalties of up to £1 million in total. HMRC cannot impose these penalties itself – each one requires a formal tribunal process. There are also smaller fixed penalties, which HMRC can issue directly, for users who fail to include a scheme reference number on their returns (typically £5,000–£10,000), with a right of appeal to the tribunal.

    This regime has proved weak. The tribunal process is slow and expensive, and promoters can often dissolve or re-incorporate before penalties are determined. Even when penalties are imposed, they are rarely paid – as in Hyrax, where the tribunal approved a £1 million DOTAS penalty but nothing was ever recovered. The result is that promoters routinely breach DOTAS with little real consequence.

    The Government’s Spring 2025 package proposes to change this by allowing HMRC to impose DOTAS penalties directly, bringing the rules into line with other modern anti-avoidance regimes. Penalties would still be appealable to the tribunal, but HMRC could issue them immediately, without needing a prior tribunal order.

    This means HMRC should be able to issue DOTAS penalties as a simple procedural step, whenever it identifies a tax avoidance scheme that is being marketed but has not been disclosed under DOTAS. The process should be much faster, making it harder for promoters to evade penalties by delay or phoenixing.

    If HMRC wants to change the avoidance landscape then it will have to act aggressively, and be willing to use the joint and several liability rules to pursue the individuals behind the schemes if/when the companies fold. I also feel that maximum penalties of £1m isn’t enough – the HMRC example of a promoter making £1m in fees per month is not fictional. I would make the maximum penalty the higher of (1) £1m, and (2) 150% of fees charged.

    The next step

    I still think more is needed. It’s offensive to me and many other tax advisers that flagrantly doomed tax avoidance schemes are still sold at scale. It’s become a mis-selling problem as much as it is a tax problem – lives are ruined when these schemes are sold to people (often people on modest incomes).

    Part of the answer is regulation (and regulation that goes further than the current Government proposal, which won’t apply to most scheme promoters). But it’s not clear that existing regulation is working. The Bar in particular has tolerated bad actors for too long. If the professions won’t regulate themselves then Government should step in.

    Footnotes

    1. An anti-avoidance rule may need to be added, so the defence wouldn’t be available if a firm artificially created non-DOTAS business to “swamp” its main DOTAS business. ↩︎

    2. “Stop notices” were a new power granted to HMRC in 2021, with the rules now in section 236A Finance Act 2014. The effect of a stop notice is that the recipient of the stop notice mustn’t promote the specified arrangements, or anything similar to them. The stop notice also requires the recipient to provide HMRC with detailed information on its clients, and to pass details of the stop notice to those clients. ↩︎

    3. In theory the existing rules should deal with that. The effect of a stop notice also applies to (amongst others) anyone who controls, or has significant influence, over the recipient of the stop notice. And if the recipient transfers its business to another person, then the stop notice applies to them too. All of this is in theory: in practice the entities tend to be offshore and highly opaque, and it is difficult or impossible for HMRC to prove the relationship between them. ↩︎

  • Carter-Ruck enabled the $4bn OneCoin fraud. Was it a crime?

    Carter-Ruck enabled the $4bn OneCoin fraud. Was it a crime?

    Carter-Ruck, Britain’s most famous libel firm, threatened whistleblowers, journalists, regulators and even the police on behalf of OneCoin, a $4 billion crypto-fraud. The firm played a key role in helping the fraud to continue. Did Carter-Ruck cross the line, and commit a criminal offence?

    OneCoin’s founder is now on the FBI’s Ten Most Wanted list; the rest of its executives were jailed or went on the run. Yet at the height of the fraud, Carter-Ruck was, in its own words, working to “silence the critics and ultimately the police”

    This report is based on a detailed review of documents in Carter-Ruck’s files, released by the Solicitors Disciplinary Tribunal last month. The documents suggest that Carter-Ruck never knew who really owned OneCoin, or who was paying its bills. They also reveal that the firm knew OneCoin faced detailed and credible fraud allegations, knew its founder, Ruja Ignatova, had a recent conviction for fraud, knew the police suspected it was a scam – and knew all of this was making it “very difficult” for OneCoin’s business to operate. So Carter-Ruck stepped in to protect OneCoin: taking down YouTube videos and sending legal threats to journalists, whistleblowers, regulators and the police.

    Carter-Ruck’s work was not incidental. It was part of the machinery that kept the fraud alive. Ponzi frauds require that the fraudsters keep the trust of their victims – and Carter-Ruck helped maintain that trust. As partner Claire Gill put it in an email to her client: “The goal of legal action is to reassure members and to send a strong PR message”.

    There’s nothing unusual or improper about lawyers acting for criminals. It’s fundamental to our justice system that lawyers defend people accused of crimes, even if they suspect their clients are guilty. What Carter-Ruck did was different: they actively helped criminals to continue their fraud. That’s why the Solicitors Disciplinary Tribunal ruled that Carter-Ruck was instructed in furtherance of a fraud.

    Carter-Ruck have said – correctly – that their firm isn’t covered by anti–money-laundering regulations. But the Proceeds of Crime Act (POCA) applies to everyone – regulated or not – and makes it a criminal offence to help someone retain the proceeds of crime, or to receive money that comes from crime, if you suspect that’s what’s happening.

    Carter-Ruck surely didn’t know they were facilitating a fraud – but they should have suspected it.

    And if Carter-Ruck did suspect their actions were helping a fraud, that raises the real possibility that they committed these offences. If, on the other hand, Carter-Ruck genuinely didn’t suspect fraud, when so many other people did, that raises serious questions about their judgment and competence.

    The Solicitors Regulation Authority is prosecuting the Carter-Ruck partner, Claire Gill, for an “improper threat of litigation“. We believe there is a more serious case to answer: that Carter-Ruck may have committed a criminal offence under POCA.

    Carter-Ruck’s only response has been to threaten us with legal and professional consequences for reporting this story. They say we are making “baseless” and “seriously defamatory” accusations, and that we are “launching a wholesale attack on Ms Gill and this firm” based on a “highly selective, tendentious and indeed grossly distorted view of the materials”. They have not identified a single specific legal or factual error. We’ll update this report if they do.

    Carter-Ruck’s client: OneCoin

    OneCoin claimed to be a cryptocurrency like Bitcoin, but centralised. It wasn’t. There was no “blockchain” – OneCoin just made up prices, took investors’ money, and paid some out to other investors and kept the rest for themselves. There’s no such thing as a centralised cryptocurrency. It was a Ponzi fraud.

    The whole thing collapsed in 2017, and its executives are all now either in jail or on the run. Around $4bn was stolen from millions of investors, across 125 countries. Carter-Ruck’s client, Ruja Ignatova, is one of the FBI’s ten most wanted fugitives, with a $5m reward for information leading to her arrest.

    The BBC article, podcast and Jamie Bartlett’s book are probably the best sources for the history of OneCoin. Jen McAdam’s book is also excellent. There is an excellent analysis of Ponzi schemes and their history in The Ponzi Puzzle by Tamar Frankel.

    After the Solicitors Disciplinary Tribunal (SDT) accepted the case against Carter-Ruck partner Claire Gill, we and a consortium of media and free speech organisations were able to obtain complete disclosure of the SDT documents. Those documents reveal the inside story of Carter-Ruck’s relationship with OneCoin, and form the basis of this report.

    Carter-Ruck never knew who owned OneCoin

    When the Solicitors Regulation Authority (SRA) started investigating Carter-Ruck, Carter-Ruck sent this explanation of how they started acting:

    The matter was introduced to the firm in May 2016 by Frank Schneider of Sandstone SA. He then acted as agent for the firm's principal client, Dr Ruja Ignatova, and various corporate entities associated with OneCoin and OneLife on whose behalf the firm was instructed, including initially One Network Services Limited (incorporated in Bulgaria) and later OneCoin Limited (incorporated in the UAE) and OneLifeNetwork Limited (incorporated in Belize). The firm obtained K YC information and documents for Dr Ignatova and for each of the corporate clients as necessary.

    This misses out an important detail.

    Carter-Ruck knew they were acting for their human client, Ruja Ignatova, and obtained copies of her passport and utility bill. However Carter-Ruck were also acting for the OneCoin companies – and Carter-Ruck appears to have known little or nothing about them.

    “Know your client” (KYC) is the procedure which law firms, banks and many other types of businesses follow to identify their clients – both individual clients and corporate clients.

    Carter-Ruck’s standard KYC form required Carter-Ruck to receive accounts or certificates of incorporation from their corporate clients. Carter-Ruck appears to have received no such documents from any OneCoin companies. Carter-Ruck asked in August 2016; received nothing, and just continued to act.

    Carter-Ruck asked for the information again in October 2016 and again in December 2016; the next month they were finally sent this:

    The first document shows OneCoin Ltd was incorporated in the UAE and had two unknown Panamanian individuals as shareholders. The second shows OneLife Network Ltd was incorporated in Belize, with no information on the shareholders.

    We would expect most law firms’ KYC processes would have regard this as a red flag. Belize and Panama are not normal business locations for European businesses:

    This was, however, more suspicious than merely companies and shareholders in high risk jurisdictions.

    The two listed Panama shareholders, César Degracia Santos and Marisela Yasmín Simmons (now Simmons Hay), were readily identifiable as corporate services providers. In other words – they were fronting for the actual, unknown, owners of the company. The use of nominee shareholders in this kind of context is usually suspicious, and that’s particularly the case given that at the time the official position of the Panama authorities was that the law did not permit a Panamanian person to act as nominee shareholder for another.

    It would have been usual practice for most law firms to speak to Messrs Santos and Simmons, to see who they were acting for. At that point, the firm might then have discovered that Santos and Simmons no longer owned OneCoin Ltd. There are documents which appear to show that by that time OneCoin Ltd had been sold to an Emirati royal in consideration for a huge number of Bitcoin plus the ownership of a bank.

    It would have been good practice for Carter-Ruck’s KYC processes to check their new client had audited accounts. In 2015, OneCoin claimed it had been audited by a firm called Semper Fortis. At that point OneCoin claimed to have a market capitalisation of around $2bn. Semper Fortis was a small and unknown firm with no obvious credentials. As at January 2016, its website consisted of one page saying “under construction”. The comparison with Madoff’s obscure auditor is obvious.

    There is, however, no evidence in the documents we reviewed that Carter-Ruck carried out due diligence, spoke to the Panamanian individuals, or appreciated the unusual and high risk nature of this arrangement. The 2017 risk email from Ms Gill just refers to a “complex corporate structure”. This was not a “complex” structure. It was a suspicious structure – those are two very different things.

    Carter-Ruck continued with business as usual – their next step was to write to the City of London police, complaining that a police officer had defamed OneCoin when he sought to protect vulnerable and impressionable people from investing in the company. The Bureau of Investigative Journalism has wrote about that episode here.

    Carter-Ruck asked OneCoin for more information in April 2017, when they thought they were about to issue proceedings:

    Dear All We are preparing to issue proceedings against Jennifer McAdam. The most important thing | need in order to progress matters is information about the corporate entities so as correctly to identify which corporate entity to put on the claim form. It needs to be the entity that will suffer harm/loss in as a consequence of the statements made by her. | do not know if that entity is OneCoin Ltd because we have no information about the corporate structure. We need to consider whether one of the OneLife companies would be the better claimant. So you can see why we need this information, | attach again the advice we had from Counsel when we were considering issuing proceedings against The Coin Telegraph. Please can Irina send me ° the corporate map identifying each OneCoin and OneLife corporate entity, e a description of what their function is and e the relevant incorporation/registration documents. Kind regards Claire Gill Partner, Carter-Ruc

    Carter-Ruck didn’t receive a response, but continued to act.

    A month later, Carter-Ruck still didn’t know anything about the two Panamanian individuals, and still didn’t know who owned the Belize companies.

    Risk Report: Ruja Ignatova | have conducted a risk assessment on this matter and have changed the risk profile from “standard” to “high” because the corporate set up is complex, the client is based abroad, and Ruja Ignatova has a conviction in Germany for fraud dating from March 2016. Since first being instructed, we have clarified that we act for corporate entities OneCoin Ltd (a UAE registered company, which runs the “cryptocurrency”) and OneLife Network Itd ( incorporated in Belize, which runs the Multilevel marketing side of the business) , as well as the service company OneNetwork Services Itd (Bulgaria) . We have KYC information on RI and certificates of incorporation for the companies but otherwise (in spite of asking) no information about the corporate set up, which is very complex. RI no longer has an executive role at either company.

    This is from an internal “risk report” prepared by Carter-Ruck on 25 May 2017; until this point, the risk profile had been “standard”.

    We should add that we only have the documents disclosed to the SRA. There may be other documents which show that Carter-Ruck did investigate the Belize company and Panama shareholders, and did know who ultimately controlled the business. However that would beg the question: why wasn’t this mentioned in the 25 May 2017 risk report?

    Carter-Ruck didn’t know who was paying them

    That same risk report concludes by saying that Carter-Ruck didn’t know which company was actually paying them, and didn’t know what the ultimate source of the payments was:

    Our bills are rendered to a consultant company based in Luxembourg (our initial instructions came via this consultant) and all but one tranche of monies paid on account of professional charges have been paid by this consultant company. The other tranche was arranged to be paid via the lawyer working for OneLife and OneCoin and came from a company apparently in Norway. | have no reason to believe that the funds come from any source other than the multi-level marketing side of the business.

    Most firms would regard it as a red flag to have their bills settled by a consultant. At a minimum, Carter-Ruck should have checked which company was paying Mr Schneider, and what that company’s source of funds was.

    Mr Schneider is now himself a fugitive.

    Again it may be that other documents showed that Carter-Ruck did know who paid them; and again it is then hard to understand why that wasn’t mentioned in the 25 May 2017 risk report.

    Carter-Ruck either didn’t know Ruja Ignatova had a fraud conviction – or acted anyway

    Sophisticated law firms usually conduct additional checks on their clients using private databases and/or the open internet.

    If Carter-Ruck had conducted such a search in 2016, it would likely have revealed that their client, Ruja Ignatova, had been accused of fraud, and it would likely have found a reference in the trade press to her being prosecuted.

    Ms Ignatova was convicted of fraud by a German court in April 2016, in her absence. It’s unclear when Carter-Ruck first became aware of this. The first mention in the Carter-Ruck files is on 9 May 2017, in advice from Matthew Nicklin KC to Carter-Ruck (he says the conviction means Ms Ignatova shouldn’t be the claimant in any libel action). It’s mentioned again in Ms Gill’s 25 May 2017 “risk report“.

    It’s possible Carter-Ruck always knew about Ms Ignatova’s conviction. It’s possible they discovered it late. However there is no evidence that knowledge of the conviction changed the way Carter-Ruck acted – with one exception.

    Carter-Ruck wrote to a Moldovan TV station on 20 October 2017, and said that there had been no criminal convictions of their clients anywhere in the world. This was arguably true; that letter said Carter-Ruck’s clients were two OneCoin companies. However Carter-Ruck were also acting for Ruja Ignatova – it may be that her name was absent from this letter because Carter-Ruck now knew she had a criminal conviction for fraud.

    Carter-Ruck kept OneCoin alive

    In any Ponzi scheme, survival depends on two things: a steady stream of incoming cash to stay afloat, and limiting the numbers of existing investors cashing out.

    It’s all about confidence. When that ends, and participants begin demanding their money back en masse, the scheme collapses because there is no genuine underlying revenue.

    So it was critical to OneCoin’s survival that its investors (in reality, victims) didn’t withdraw too much money. In Internal OneCoin documents provided to Carter-Ruck in 2016 showed that over 50% of amounts paid out by OneCoin to its investors were “reinvested” in OneCoin. At some point this became insufficient to sustain the Ponzi, so on 1 January 2017, OneCoin blocked withdrawals.

    The blocking of withdrawals is often a sign of a Ponzi scheme reaching its end. At that point all that was sustaining OneCoin was faith – and the criticisms of one whistleblower, Jen McAdam, and a cryptocurrency expert, Bjørn Bjercke, became a particular threat.

    We can see this in communications from a OneCoin investor/marketer called Lynn, who was desperately worried about Mr Bjercke’s criticisms. She wrote to OneCoin, in an email forward to Carter-Ruck, that “A statement or press release or company video or anything from the legal department or from Dr Ruja would definitely go a long way to stop the fear from affecting my business and the businesses of my team members”.

    Lynn wrote in another email that OneCoin had to take action to help her fellow investors/victims “gain belief and trust in the company again”, and that Jen McAdam was “destroying” the business by telling people that OneCoin was a scam and was under investigation by the City of London police (which it was). Lynn’s emails became increasingly nervous – and that prompted an immediate reaction from OneCoin.

    Investor anxiety was immediately channelled into legal and PR strategy – Carter-Ruck received these emails within hours.

    Ms Gill wrote in response that she understood that the publicity was making the OneCoin business “difficult to operate”. Or, as we now know (and Ms Gill should have suspected) that it was risking the unravelling of the fraud.

    Carter-Ruck therefore planned to commence legal action against Ms McAdam to (in Ms Gill’s words) “reassure members” and send a “strong PR message”.

    The first part of Carter-Ruck’s work was investor reassurance; the second was suppressing official warnings. In September 2016 they wrote to the Financial Conduct Authority challenging the risk warning it had published on OneCoin. In April 2017, Carter-Ruck wrote to the City of London Police after a senior officer publicly warned people about OneCoin, with Carter-Ruck saying that his statements were “causing damage” to the reputation of OneCoin and to its business. A few months later Carter-Ruck escalated matters, writing to the Chairman of the City of London’s Police Committee to complain that the police were taking “active steps” to “disrupt our clients” business”, calling this “unacceptable”.

    So this was Carter-Ruck’s role – in its own words, to “silence the critics and the ultimately the police”.

    By silencing critics and challenging police warnings, Carter-Ruck’s actions helped OneCoin sustain the appearance of legitimacy – and with it, the flow and retention of investors’ money.

    Did Carter-Ruck break the law?

    We believe Carter-Ruck acted unprofessionally, indeed recklessly. The key question is whether any laws were broken.

    Money laundering rules

    The SRA conducted a lengthy investigation and eventually made three formal allegations against the Carter-Ruck partner, Claire Gill. One of those included undertaking insufficient client due diligence.

    The allegations were considered by the SRA’s “Authorised Decision Maker” who issued a Decision Notice which determined to proceed with one allegation (improper conduct of litigation) but not the others. The allegation of undertaking insufficient due diligence was rejected because the SRA had not identified a specific obligation which Ms Gill had breached. A full copy of the Decision Notice is here – see paragraphs 20 and 21.

    The reason is simple: Carter-Ruck was not AML-regulated.

    A regulated firm has to conduct extensive checks to establish the bona fides of its client, and is required to report any suspicion of money laundering. An unregulated firm is subject to much weaker standards.

    AML rules apply only to firms that undertake certain types of legal work: work that, broadly speaking, involves tax, finance, property or the creation/management of trusts and companies. A firm, like Carter-Ruck, that only conducts media law and related litigation is not normally required to be regulated.

    Proceeds of Crime Act offences

    There are, however, two important anti-money laundering rules that apply even to unregulated firms: sections 328 and 329 of the Proceeds of Crime Act 2002:

    The offence in section 328 applies if (1) a person enters into or becomes concerned in an “arrangement”, (2) they know or suspect, (3) that the arrangement facilitates, by whatever means, the acquisition, retention, use or control, (4) of criminal property by or on behalf of another person.

    Carter-Ruck’s instruction and activities for OneCoin were likely an “arrangement”.

    Whilst not intended by Carter-Ruck, objectively their involvement likely “facilitated” the retention of criminal property (cash) by OneCoin, by silencing OneCoin’s critics, preventing its “investors” from demanding their money back, and enabling its fraud to continue. We anticipate Carter-Ruck may argue that “facilitation” only covers direct dealing in criminal property – but the words “whatever means” make this a difficult argument to sustain. The Solicitors Disciplinary Tribunal has already ruled that Carter-Ruck was instructed to further a fraud.

    The Court of Appeal held in Bowman v Fels that section 328 does not apply to the “ordinary conduct of legal proceedings”, even if a lawyer suspects that a litigation settlement may be paid from criminal property. This case is different. On the evidence, Carter-Ruck’s threats and takedowns went beyond the incidental disposition of criminal proceeds: they were used to takedown YouTube videos and suppress warnings from journalists, whistleblowers, regulators and the police, and therefore prolong the fraud. That was not an incidental consequence of Carter-Ruck’s actions, but (from OneCoin’s perspective) their purpose. Claire Gill herself said, “The goal of legal action is to reassure members and to send a strong PR message”. These were not “ordinary” legal proceedings.

    There is a further point: the SRA are prosecuting Carter-Ruck for engaging in abusive litigation: if the SRA’s case is proven then this was not “ordinary conduct” by Carter-Ruck.

    There have been no POCA cases on facts of this kind – but few law firms have found themselves in the position Carter-Ruck did. It’s our view, based on discussions with POCA specialists, that it’s likely the section 328 offence was committed if Carter-Ruck did suspect that it was facilitating the retention or control of criminal property by its clients.

    The offence in section 329 is committed where a person acquires, uses, or has possession of “criminal property” and knows or suspects that it is criminal property.

    We expect Carter-Ruck were (unknowingly) receiving criminal property – their fees were presumably the proceeds of OneCoin’s fraud (given that OneCoin appears to have had no legitimate business).

    Many lawyers act for criminal clients and, therefore, must suspect that the fees they are receiving are criminal property. However, ordinarily, a lawyer in this position can say that they provided “adequate consideration” for the fees (by providing legal services) and so qualify for the defence in section 329(2)(c). However, section 329(3)(c) says that “provision by a person of goods or services which he knows or suspects may help another to carry out criminal conduct is not consideration”.

    As a factual matter, Carter-Ruck were helping OneCoin to carry out criminal conduct: they were (unwittingly) enabling OneCoin to keep the fraud going, and retain their existing criminal property. It’s therefore our view, again based on discussions with POCA specialists, that if Carter-Ruck did suspect that this was happening, then the section 329 offence may have been committed. Even if some receipts by Carter-Ruck were shielded by the “adequate consideration” defence then others may not be. We believe that the legal analysis for section 329 is clearer than for section 328.

    The critical point is therefore that both criminal offences will only apply if Claire Gill or others at Carter-Ruck suspected that OneCoin was a fraud, and suspected that Carter-Ruck’s actions were facilitating/helping a fraud.

    It is important to be clear: the POCA offences will never normally apply to a lawyer acting for somebody who may be a criminal, even if the lawyer suspects the person is a criminal. In most circumstances – and in particular if the lawyer is defending the person in criminal proceedings – the lawyer is never “facilitating” or “helping” ongoing criminality. Carter-Ruck’s actions, however, were unusual. As a factual matter, they likely did help and facilitate the continuation of fraud by OneCoin. That will surely not have been Carter-Ruck’s intention – but “intention” is not the test here. “Suspicion” is the test.

    Carter-Ruck appear to disagree, although they have not said why. Possibly their view is that s329 applies to a lawyer if their action is an intrinsic part of the crime itself – for example a lawyer structuring a fraudulent transaction. The problem with this is that a Ponzi fraud is all about deception and ensuring that the “investors” continue to believe their investment is real. Carter-Ruck’s actions were a critical part of that – as Claire Gill said, “The goal of legal action is to reassure members and to send a strong PR message”. Deception and reputation management were not side issues; they were the core mechanics of the crime itself – and that required Carter-Ruck’s legal threats.

    Carter-Ruck may also claim that any prosecution sets a dangerous precedent – a “chilling effect” that would prevent lawyers acting in the best interest of controversial clients. It would not, for the simple reason that a lawyer in this position could simply file a DAML SAR. That is what lawyers in much less suspicious cases do frequently.

    Was there a SAR?

    There is a defence to sections 328 and 329 for a person who becomes suspicious that they may be dealing/facilitating dealing in criminal property – an “authorised disclosure” to the National Crime Agency – a “Defence Against Money Laundering Suspicious Activity Report“, or “DAML SAR“.

    (Note this is different from an “ordinary” SAR where a firm is reporting a suspicion of money-laundering by a client or other party. A DAML SAR is where the firm suspects it may itself facilitate criminality, or receive criminal proceeds. Ordinary SARs are generally relevant only to firms undertaking AML-regulated work. Carter-Ruck was not AML-regulated – but DAML SARs are relevant to everyone.)

    The NCA then has seven days in which it decides whether to grant the DAML – meaning that the person then has a defence against any accusation they have committed an offence under sections 328 and 329. Consent is deemed to be given if the NCA doesn’t respond within the seven days.

    We spoke to lawyers with decades of expertise in KYC/AML/compliance roles at a variety of large and small law firms, regulated and unregulated. Their consistent view was that, on these facts, they would have filed a DAML SAR as soon as any suspicion arose, and would have considered further reports each time a new potential offence might arise (for example, before sending a letter threatening proceedings or raising an invoice).

    From a risk perspective there is no reason not to file a DAML SAR if there is the slightest doubt (as, under section 338(4A) POCA, legal privilege generally does not prevent filing a DAML SAR). There are, on the other hand, very adverse consequences if one does not file a DAML SAR and an offence is in fact committed. Our contacts therefore all recalled filing DAML SARs in much less suspicious circumstances than those surrounding OneCoin. This is reflected in the high number of DAML SARs filed by law firms (of which around 5% were refused).

    If Carter-Ruck did file appropriate DAML SARs, and received consent or deemed consent, then any potential criminal liability under POCA would be extinguished.

    However we infer that Carter-Ruck did not file a DAML SAR, for three reasons:

    • It seems unlikely that any disclosure was made before May 2017, or that would surely have been mentioned in the risk report.
    • No reference to a SAR appears in Carter-Ruck’s correspondence with the SRA, even when the SRA was investigating due-diligence failures.
    • When we wrote to Carter-Ruck identifying the possible offences under sections 328 and 329, their response did not mention any DAML SAR. Instead, it asserted in general terms that our legal analysis was “misguided”. It would be perverse for them not to mention a DAML SAR, had one been filed.

    The evidence for “suspicion” under POCA

    The threshold for “suspicion” under POCA is low. The NCA says there does not need to be anything amounting to evidence.

    The leading case holds that a person:

    “must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be “clear” or “firmly grounded and targeted on specific facts”, or based upon “reasonable grounds”.

    …

    the suspicion must be of a settled nature; a case might, for example, arise in which a defendant did entertain a suspicion in the above sense but, on further thought, honestly dismissed it from his or her mind as being unworthy or as
    contrary to such evidence as existed or as being outweighed by other considerations”

    It is a question of fact whether Ms Gill suspected that her client was in fact engaged in fraud, and whether she would be helping/facilitating that fraud.

    While this legal test is subjective (what Ms Gill actually suspected), courts can infer this suspicion from the surrounding facts.

    Looking at the facts in question:

    • In 2016 and 2017 many people believed that OneCoin was fraudulent.
    • In June 2016, an executive at Apex Fund Services acting on a fundraising saw a OneCoin email address on a document and, after seeing the results of a series of internet searches, he called an emergency meeting with his risk and compliance teams, and filed a “suspicious activity report” with Apex’s anti-money laundering regulator.
    • In December 2016, the Bank of New York’s compliance team determined, on the basis of internet searches, that OneCoin was a Ponzi scheme.
    • On 1 January 2017, OneCoin blocked its “investors” from withdrawing their money – a classic sign of a Ponzi scheme.
    • The evidence continued to accumulate through the course of 2017.
    • Here are Ms Gill’s notes of an 11 May 2017 meeting:
    • The notes suggest (on page 2) that a missing blockchain is itself a crime, because it is a fraud. Then, on page 8, the notes appear to record Ms Gill saying “They will bring in blockchain -> if no blockchain -> scam -> fraud -> criminal”.
    • Ms Gill at that point knew that the Norwegian blockchain expert, Bjørn Bjercke had published specific evidence that there was no blockchain (his test transaction did not appear on the purported “blockchain”). Despite repeated requests, Ms Gill had received nothing from OneCoin that rebutted this.
    • So Ms Gill wrote (well after Mr Bjerke and Ms McAdam had been threatened with defamation claims) “We are not able to say what is false about the blockchain claims”.
    • Soon after that meeting, on 31 May 2017, The Atlantic published a lengthy article describing OneCoin as a “criminal conspiracy” and detailing the enforcement actions that had been taken against it worldwide. The author wrote “it’s easy to see the lie in OneCoin’s fictional blockchain” which was “led and promoted by known fraudsters waving fake credentials”.
    • By October 2017 there had been a series of arrests and regulatory enforcements across the world, with Ruja Ignatova herself personally charged with fraud in India.
    • We now know that the City of London police had been investigating OneCoin for some time. In 2016, they warned a website not to promote OneCoin and advised a London venue not to host a OneCoin event. Carter-Ruck were certainly aware of this, because they wrote to the City of London police threatening libel proceedings and making a complaint to the Professional Standards Directorate. The police responded on 27 October 2017 in this very detailed letter from their solicitors, BLM. The letter says explicitly that police believed OneCoin to be fraudulent – that seems to be mainly based on information that was in the public domain, and that was available to Carter-Ruck.

    Carter-Ruck’s last material act for OneCoin was when, on 20 October 2017, they wrote to a Moldovan TV station demanding that they “immediately and permanently delete and remove” a broadcast criticising OneCoin. They were successful – the broadcast was deleted.

    The critical question is, therefore: at 20 October 2017 did Carter-Ruck “suspect” that their client was a criminal enterprise, and that by deleting criticism of OneCoin, they’d be helping/facilitating that enterprise?

    The SRA themselves appear to believe that Ms Gill suspected OneCoin was fraudulent – their lawyers, Capsticks, wrote on 11 April 2025 that Ms Gill “must have known there was a strong possibility that OneCoin was fraudulent”.

    Claire Gill denies she knew there was a strong possibility that OneCoin was fraudulent – this is from a response to the SRA:

    However, looking at Ms Gill’s 25 May 2017 risk report, it is hard see how she could not have suspected:

    It is not clear to us from this whether Ms Gill suspected her client was fraudulent or not.

    Carter-Ruck say in their SDT defence that Ms Gill didn’t believe that OneCoin was fraudulent, and that “even if she had any suspicion” that her client was a fraud, she was entitled (and indeed under a duty) to continue to act for them.

    These responses, and Carter-Ruck’s own contemporaneous risk report, miss the critical point: that if Ms Gill did suspect OneCoin was a fraud, and that she was helping/facilitating that fraud, then she may have committed a criminal offence.

    In our view, a competent lawyer would have suspected that OneCoin was carrying out a fraud.

    Holding Carter-Ruck to account

    Defamation lawyers should be subject to AML regulation

    There is a gap in the law. Defamation solicitors frequently act for people suspected of criminality, and their actions (if successful) will often assist that criminality, but defamation solicitors aren’t subject to anti-money laundering rules.

    That should change.

    Everyone accused of a crime is entitled to legal representation in their defence. But someone accused of an ongoing crime is not entitled to instruct lawyers to facilitate the continuation of that crime. Most law firms (regulated or not) screen their clients carefully so they don’t ever find themselves in that position. Carter-Ruck apparently do not – and they’re not alone. Self-regulation has failed.

    And it’s also unacceptable that defamation solicitors can act for a company without knowing who owns it. In our view there is a material risk that Carter-Ruck’s clients could be controlled by criminals, sanctioned individuals, money-launderers or terrorists. On the evidence of the OneCoin documents we reviewed, Carter-Ruck makes no attempt to check, and the firm appears to believe they have no obligation to check.

    There is an obvious solution: the money laundering regulations should be amended to include advising in relation to and conducting defamation litigation. This doesn’t require primary legislation – the relevant Minister is empowered to make regulations amending the rules.

    The potential breach of POCA should be investigated

    The National Crime Agency should consider whether the evidence justifies prosecuting Carter-Ruck for a breach of the Proceeds of Crime Act (unless in fact appropriate DAML SARs were filed). POCA offences are often hard to prosecute against lawyers because of legal privilege; however (as the SDT has already ruled) few or none of the key documents are privileged.

    Any such prosecution would set a new precedent on the scope of a solicitor’s duties under POCA when representing clients involved in an ongoing fraud. That would be a good thing.

    Alternatively, or in addition, the NCA should consider whether the evidence justifies bringing civil recovery proceedings against Carter-Ruck under Part 5 of the Proceeds of Crime Act. Those provisions apply to property derived from “unlawful conduct” – a definition that may capture Carter-Ruck’s fees. The court could order recovery unless the firm can demonstrate it acted in good faith and without notice that the money was criminal. If Carter-Ruck suspected OneCoin was a fraud, that could prove a challenging case for Carter-Ruck to make.

    Whether or not the NCA act, a breach of POCA is a breach of the SRA Code of Conduct (as is any criminal offence committed by a solicitor). The SRA should considering adding an additional charge to their prosecution of Ms Gill.

    Carter-Ruck’s response

    Carter-Ruck’s defence relies heavily on an opinion by Timothy Dutton KC obtained by Carter-Ruck which says that AML-unregulated solicitors have no due diligence obligations, and are required to act even if a client’s position is factually not credible.

    Mr Dutton is unable to identify (in paragraph 44.1) a difference in principle between a solicitor in a SLAPP case and a criminal defence solicitor. This shows a remarkable failure of imagination. The correct comparison is not with someone defending a bank robber after the event – it’s with a solicitor threatening witnesses with defamation claims if they report that a robbery is happening. A criminal defence solicitor is not facilitating an ongoing crime, but a solicitor in Carter-Ruck’s position is (and was).

    Mr Dutton’s opinion also fails to address the Proceeds of Crime Act. A breach of POCA, as with any other criminal offence, is a breach of the SRA Code of Conduct. That is the case regardless of whether or not the breach is prosecuted.

    We expect Mr Dutton’s opinion reflects his instructions from Carter-Ruck. The document illustrates a familiar truth – that a KC’s opinion commissioned by a party with a particular interest is valuable chiefly as advocacy, not as analysis.

    Carter-Ruck’s position seems to be that a lawyer can facilitate conduct they suspect is illegal, as long as they don’t know it’s illegal. That is an extreme position, and one that’s contrary to accepted legal norms.

    Carter-Ruck also claim to have relied on advice from Hogan Lovells that OneCoin was not a pyramid scheme. That is no defence at all. OneCoin was a fraud, and that is not something which the Hogan Lovells opinion considers (or could have considered). As Richard Moorhead has written, the stated reliance is merely a way of avoiding responsibility. We will be writing further about the Hogan Lovell opinion.

    Our correspondence with Carter-Ruck

    We wrote to Carter-Ruck saying that the documents appeared to show an absence of KYC procedures and, if that was correct, there was a high risk Carter-Ruck were facilitating other frauds and/or acting for companies controlled by criminals or sanctioned individuals.

    Here is Carter-Ruck’s reply:

    Carter-Ruck say that the absence of adequate due diligence has never formed part of the SRA’s case. That’s correct, because whilst the SRA initially alleged a due diligence failure, it was unable to identify a professional obligation Carter-Ruck had breached. That in no sense prevents us from conducting an independent analysis.

    Carter-Ruck claimed in their reply that our “misguided” assertions were made because the documents available to us were only a partial record of what happened. We reviewed the documents exhaustively. We acknowledge that this is only part of Carter-Ruck’s client file, and there may be other documents that contain relevant information. It is, however, reasonably clear that Carter-Ruck never knew who their client was – the 25 May 2017 risk report says so.

    We therefore asked Carter-Ruck to respond directly to the accusation they never investigated the true ownership of OneCoin:

    Carter-Ruck didn’t reply.

    We wrote again, identifying the potential offences under POCA.:

    Carter-Ruck responded with a letter that had failed to specifically address any of the points we had made, and instead threatened us with legal and professional consequences for reporting this story. The letter says we are making “baseless” and “seriously defamatory” accusations, and that we are “launching a wholesale attack on Ms Gill and this firm” based on a “highly selective, tendentious and indeed grossly distorted view of the materials”:

    Carter-Ruck add that “the money laundering offences in sections 328 and 329 of the Proceeds of Crime Act 2002, which have been the subject of careful and extensive interpretation by the courts, do not have the application here that you apparently suggest, for reasons that ought to be clear to you”. We do not know what those reasons are; neither do the POCA specialists we spoke to.

    We pointed out that Carter-Ruck’s letter failed to identify any specific factual or legal error, and gave them another opportunity to reply. They did not take it:

    Carter-Ruck helped facilitate a major crime. They didn’t know that’s what was happening, but they should have suspected it. That has to have consequences.

    Thanks to T and C for the POCA and AML analysis, B, K and C for additional research, Q, A, J and L for giving the benefit of their experience in law firm AML/POCA compliance. Thanks to Helen Taylor of Spotlight on Corruption, E and N for reviewing a late draft.

    Thanks to The Bureau of Investigative Journalism, The Foreign Policy Centre, The Free Speech Union and Spotlight On Corruption for working with us on the application that resulted in the publication of the full SDT document suite.

    And, most of all, thanks to Jen McAdam and Bjørn Bjercke, who spoke out against OneCoin at a critical moment, in the face of intimidation and threats.

    All published documents are the copyright of whoever owns them, and are published in the public interest.

    Footnotes

    1. Unless “DAML SARs” were filed by Carter-Ruck with the National Crime Agency – the available evidence suggests that’s unlikely, but see further below. ↩︎

    2. There never was – and multiple sources attest to this being widely known in 2016. Genuine cryptocurrencies like Bitcoin rely on a blockchain which provides decentralised public verification. “centralised” systems are simply databases controlled by a single organisation. ↩︎

    3. The OneCoin Wikipedia article isn’t very good – it looks like a very old article that’s been occasionally updated. It badly misreads its sources – for example claiming that BBC reporters believe Ruja Ignatova is living in Frankfurt. ↩︎

    4. It is important to note that the files are the documents sent by Carter-Ruck to the Solicitors Regulation Authority as part of the SRA investigation. They are not a complete set of Carter-Ruck’s client files, and so it’s necessary to be cautious about assuming they provide a complete picture. ↩︎

    5. We are looking for ways to publish all the Carter-Ruck SDT documents in the public interest; it’s 1,200 pages and we would first need to redact personal information (such as email addresses and direct dial/mobile phone numbers). ↩︎

    6. With the exception of shipping businesses, which are often incorporated in Panama for “flag of convenience” reasons. ↩︎

    7. As an aside, the same individuals have on occasion been involved in UK companies and limited partnerships. ↩︎

    8. There are some contexts where it is not suspicious at all (such as some UK corporate groups with legacy issues around plc two shareholder rules). However having a business held by nominee shareholders is very unusual. ↩︎

    9. See page 46 of the November 2016 OECD document. ↩︎

    10. This is based upon documents published by lawyer Jonathan Levy showing that OneCoin Ltd was sold to an Emirati royal, Sheikh Saoud bin Faisal Al Qassimi for 230,000 bitcoin at some point in 2015, with the sale completed in February 2017. 230,000 bitcoin was worth $58m at the time – it’s now worth $26bn. There is a wider suite of documents which appears to show Mr bin Faisal agreeing to sell Ms Ignatova a bank. The status and provenance of the documents is unclear; and note that the 2015 refers to “OneCoin Company Ltd” (which doesn’t appear to ever existed), but the other documents to the actual entity, “OneCoin Ltd”. Mr bin Faisal denied any involvement in a communication to the BBC in 2022. As of September 2025, there appears to be ongoing litigation by Mr bin Faisal against Messrs Santos and Simmons – see the top of page 8 of the September 2025 Gulf Times. ↩︎

    11. OneCoin published a video of Ms Ignatova interviewing the senior partner of Semper Fortis. It comes as no surprise that the audit turned out to be have been written by OneCoin staff. Given Semper Fortis claimed to have audited a blockchain that did not in fact exist, it seems a fair assumption that they were involved in the fraud to some degree. However we are unaware of It is unclear what happened to Semper Fortis and ↩︎

    12. That remains the case today – although the website still hosts some documents. ↩︎

    13. One lawyer who reviewed a draft of this report wondered if, when Ms Gill wrote “complex”, that was actually a euphemism for “suspicious”. That is possible. ↩︎

    14. See, for example, paragraph (i) on page 37 of fa. ↩︎

    15. We say this because we have spoken to three KYC specialists at law firms, and they all believed it was likely that their usual “open source” searches would have identified these articles. ↩︎

    16. This is possibly referred to obliquely in the initial Q&A document OneCoin sent to Carter-Ruck. ↩︎

    17. The image and link are to the sections as they were in 2017. ↩︎

    18. Note that section 328(3) disapplies liability where the defendant knows or reasonably believes the relevant criminal conduct occurred overseas and was lawful there. Given that the underlying wrong is fraud (criminal in the relevant jurisdictions) and the acts complained of occurred in/targeted the UK (including UK regulatory warnings), the exception has no realistic application on these facts. ↩︎

    19. An “arrangement” goes beyond a series of unilateral acts. The retainer, coordinated PR-legal strategy, and liaison with overseas lawyers together evidence a concerted plan, not isolated letters. See the Supreme Court’s treatment of “arrangement” in R v GH. ↩︎

    20. Section 328 requires that the arrangement “facilitates” (by whatever means) retention/use/control; it does not require “but-for” causation or a substantial contribution. The Supreme Court in R v GH analysed s.328 on the basis that arrangements that make it easier to retain/control tainted money fall within the provision. Carter-Ruck’s litigation/takedown strategy (FCA notice, TV broadcast) had that effect. ↩︎

    21. Note that R v Geary [2010] EWCA Crim 1925 is authority that the “criminal property” in question must already exist (and represent the proceeds of crime) at the time of the alleged offence. So if Carter-Ruck enabled OneCoin to defraud more investors then that might not be within s328 – although on these highly unusual facts we don’t believe that is entirely clear. However we believe it is reasonably clear that Carter-Ruck enabling OneCoin to retain the proceeds of previous frauds is within s328. This point therefore slightly narrows Carter-Ruck’s exposure, but only slightly. ↩︎

    22. Carter-Ruck successfully forced the Financial Conduct Authority to take down its warning notice. They worked with a Norwegian lawyer (since struck off) to bring a lawsuit against a Norwegian cryptocurrency expert, and Carter-Ruck threatened a Scottish whistleblower with a libel action. These tactics appeared to have successfully silenced OneCoin’s critics. Carter-Ruck also sent letters to the police threatening defamation proceedings after the police warned off various third parties from dealing with OneCoin. This likely enabled the fraud to continue longer than it would – why else would OneCoin have instructed Carter-Ruck? – and therefore minimised “investor” withdrawals and facilitated retention of the proceeds of the fraud. ↩︎

    23. SDT findings are not dispositive. The SDT applies the civil standard and addresses professional misconduct, not criminal liability. We rely on its findings as context that supports (but does not prove) the contention that Carter-Ruck was hired by OneCoin to further its fraud; however it is not clear to us how anybody could reasonably reach a different conclusion. ↩︎

    24. We anticipate Carter-Ruck may take an absolutist view of “ordinary legal proceedings”. We believe such an approach is not supported by either Bowman v Fels or the statutory language of POCA. See page 91 of the Legal Affinity Group’s guidance for an example of where litigation is not “ordinary”. ↩︎

    25. The overlap between sections 328 and 329 was confirmed in R v GH: s328 targets facilitation by arrangements, while s329 targets receipt or use of the criminal property itself. Both may apply on the same facts if the solicitor both arranges and accepts payment. ↩︎

    26. It is not necessary to prove the specific details of the crime that gave rise to the property – the accepted history of OneCoin gives rise to an “irresistible inference” that it could only have been derived from crime – see R v Anwoir [2008] EWCA Crim 1354). ↩︎

    27. Note that in R (World Uyghur Congress) v NCA [2024] EWCA Civ 715 the Court of Appeal emphasised that the adequate-consideration defence is narrowly confined to s329 and does not spill over to s328. See commentary from Skadden and the Bar Council. ↩︎

    28. Following WUC, courts caution against treating adequate consideration as “cleansing” criminal taint for other offences. While our s329 analysis focuses on receipt/use/possession of pre-existing criminal property, follow-on handling (conversion/transfer) may still engage s327 absent Bowman protection. See the WUC Court of Appeal judgment and practitioner commentary from Slaughter and May and Mountford Chambers. ↩︎

    29. In other words, in a Ponzi, suppressing warnings and reassuring “members” is the mechanism by which existing proceeds are retained and further payouts avoided. The legal relevance flows from s328’s breadth (“by whatever means”) and R v GH’s focus on arrangements that ease retention/control of tainted funds. ↩︎

    30. By contrast, for ordinary SARs (not seeking a DAML), legal professional privilege remains a bar to disclosure unless the iniquity exception applies. That exception only arises where, on the balance of probabilities, the communication itself was made in furtherance of a crime. By comparison, the threshold for filing a SAR is merely a suspicion, a much lower standard. In practice, that creates a tension: a solicitor may suspect criminality (triggering a potential duty to report) but still be prohibited from making a SAR because privilege has not been displaced on the higher balance-of-probabilities test. That can result in the firm having to cease to act – a very serious step. This is why most firms are so careful to check their clients before accepting an instruction. ↩︎

    31. It could be an offence to disclose the existence of a DAML SAR if that prejudices an investigation; it is reasonably clear that the time for such considerations is well past. ↩︎

    32. It is noteworthy that the supposed client initially hid the involvement of OneCoin in a transaction – an accidentally included email address tipped off the executive to OneCoin’s involvement. There is other evidence that those laundering money for OneCoin took great care to keep OneCoin’s name out of documentation, because they believed any involvement of OneCoin would cause AML checks to be failed. ↩︎

    33. This is from Paul Spendiff’s testimony at Mark Scott’s trial for money-laundering. We can’t find a primary source, but there is a good summary in this Twitter thread (unrolled here) and in Jamie Bartlett‘s book The Missing Cryptoqueen. ↩︎

    34. See page 7 of this US civil judgment. ↩︎

    35. These may well be Ms Gill paraphrasing the expected lines taken by other people, e.g. Mr Bjercke. However her awareness of the underlying logic suggests she may have been aware that fraud was more than a mere fanciful possibility. ↩︎

    36. Carter-Ruck did receive a “technical explanation”, but it was apparently written by an unknown third party who had no first hand knowledge of OneCoin’s technology. It refers to OneCoin “our client” and says “we are informed that” coins are produced by a cryptographic algorithm. The author appears to have little understanding of the underlying technology, repeatedly confusing SQL (a database query language) with a database – this sentence, for example, is gobbledegook: “SQL is the database which sorted according to the coding is implemented in the blockchain and encrypted”. Carter-Ruck don’t appear to have had the technical expertise to identify the errors in the document, but did understand that the document did not actually explain how Onecoin operated. Carter-Ruck asked for a more detailed document, but never received one. ↩︎

    37. Soon after this, Carter-Ruck ceased acting for OneCoin. The stated reasons were that Ruja Ignatova had disappeared, and that OneCoin had suddenly started publicising an “initial coin offering” that all the lawyers involved thought was highly problematic from a regulatory standpoint. See this final letter from Carter-Ruck. It is possible that the letter from the police was an additional, unstated, reason for Carter-Ruck to finally pull back. ↩︎

    38. i.e. because “strong possibility” is a higher bar than “more than fanciful”. ↩︎

    39. Unless in fact appropriate DAML SARs were filed. ↩︎

    40. Noting again that we do not have the complete Carter-Ruck files; the documents we have reviewed seem inconsistent with the possibility that at some point proper KYC was conducted, but we cannot be certain of this. ↩︎

    41. We are excerpting these responses; the rest of their email relates to another matter which we will be reporting on shortly. ↩︎

  • Could we have stopped Revolut’s founder from leaving the UK?

    Could we have stopped Revolut’s founder from leaving the UK?

    Nik Storonsky, the billionaire founder of Revolut, has reportedly left the UK and become tax resident in Dubai – a move that could save him more than £3 billion in UK capital gains tax. His departure raises a larger question for the UK tax system: could we have stopped him leaving? Either with the carrot of a more competitive tax system, or the stick of an exit tax?

    The £3bn exit

    As reported, Nik Storonsky, the founder of Revolut, updated a Companies House entry to show his residence shifting from the UK to the United Arab Emirates.

    Revolut is expected to list in the near future, with the most recent funding round suggesting its market capitalisation would be around £55bn. Mr Storonsky owns about 25% of the business – so his stake is worth about £14bn (and potentially more under an incentive deal if the value of the business grows significantly).

    If he’d remained UK resident then he would have been taxed at 24% on his capital gain when/if he sold shares – with a CGT liability of up to £3.4bn if he sold them all.To put this in context, that’s about a quarter of the UK’s total capital gains tax revenue in any one year.

    Mr Storonsky would also have paid UK income tax at the dividend rate of 39.35% on dividends on his shares.

    The UAE has no capital gains tax or income tax. So Mr Storonsky has plausibly saved over £3bn by leaving the UK.

    The question is how we should think about this, and whether we should change our tax policy – either reducing tax to convince people like Mr Storonsky to stay, or creating exit taxes to make it more expensive for them to leave.

    There are at least three different ways to view this – but no easy answers:

    1. This shows the UK is not competitive

    In a very real sense this is true. For someone expecting to make a large capital gain, or receive a large amount in dividends, the UK is completely uncompetitive against the UAE and other countries that have zero capital gains tax and/or zero income tax.

    This is, however, a proposition that only a small island or an oil-rich city-state like Dubai can offer. No large developed economy has zero income tax or zero CGT – it can’t be done.

    Merely cutting our income and CGT wouldn’t change the dynamic – we’d have to match (or almost match) the UAE’s proposition.

    Could the UK abolish CGT?

    Capital gains tax is expected to raise £20bn in 2027/28 – a substantial sum. There would undoubtedly be dynamic effects from abolishing the tax – abolition would cost less than £20bn, as increased economic activity caused additional revenue from other taxes.

    In the short term these effects would be very large, as people who’d sat on assets with large unrealised gains took the opportunity to dispose of them. However the evidence suggests that there would be very limited positive effects beyond this.

    The key reason is that UK assets are mostly held by institutional and foreign investors who aren’t subject to UK CGT. The wealthy generally diversify their holdings, and so only a small proportion of their assets will be UK assets. This puts a low cap on the ability, even in principle, of capital gains tax policy to materially impact the UK economy.

    Another reason: the rate of capital gains tax is too low to have large incentive effects. If the rate of capital gains tax was 98% (say) then a rate cut absolutely would pay for itself, but a rate of 24% means that is very unlikely.

    So there’s limited upside. There is, however, a considerable downside to abolishing capital gains tax, aside from the c£20bn of immediately lost revenue.

    Without CGT, people have a huge incentive to avoid tax by shifting what is really income into capital gains. The Beatles did it in the 1960s. The wealthy continued to do it in the 1970s (which is one reason why those apparently high 98% income tax rates in fact raised little). Private equity firms do it today. There’s lots of evidence that changes to CGT rates exacerbate these effects, and CenTax has plausibly estimated that abolishing CGT would reduce income tax revenues by between £3bn and £12bn.

    Many economists therefore believe that capital gains taxes shouldn’t exist in principle, but have to exist in practice to protect income tax.

    Those (non-tax haven) countries that don’t have a capital gains tax usually defend against the potential loss of income tax by creating a series of special rules that realistically amount to a rather messy and complex capital gains tax. A New Zealand law firm has written a helpful explanation of the New Zealand approach, and the title says it all: “Just admit it already New Zealand, we do have capital gains taxes“.

    My conclusion: eliminating capital gains tax would cost c£25bn – about 1% of GDP, with little upside.

    That’s not to say there aren’t other things we can do to make our capital gains tax system encourage investment. We could stop taxing illusory inflationary gains. We could end the anomalous and unprincipled prohibition on deducting capital losses from ordinary income.

    There are also other ways we could change the tax system to encourage investment; we could abolish stamp duty on shares. We could reform corporation tax. We could abolish business rates and stamp duty land tax and replace them with a modern land value tax.

    However it’s doubtful that any of these would have persuaded Mr Storonsky to stay in the UK – none of them would have materially changed his £3bn capital gains tax bill – indeed the most realistic CGT reform would increase it..

    Even if we reduced CGT to 5% (likely at an overall cost of £20bn+), migration would still have saved Mr Storonsky £600m of tax. I suspect most people would migrate to save £600m.

    We can’t compete with the UAE.

    2. This shows we should change the law and tax exits

    This argument goes: it’s unfair that someone can build a valuable business in the UK, leave the UK, and then never pay tax on what is (realistically) remuneration for their work during the time they spent in the UK. “Unfair” both from a vertical equity standpoint (why should Mr Storonsky pay less tax on billions than a cleaner pays on minimum wage) and a horizontal equity standpoint (why should Mr Storonsky pay less tax than someone in an identical position who chooses to remain in the UK?).

    It also seems undesirable for the UK to have a tax system that actively encourages wealthy people to leave.

    Many countries try to prevent these outcomes with “exit taxes”.

    Typically how this works is that, if you leave the country, the tax rules deem you to sell your assets now, and if there’s a gain then you pay tax immediately (not when you later come to sell). Often you can defer the tax until a future point when you actually sell the assets or receive a dividend. And if your new home taxes your eventual sale, then your original country will normally credit that tax against your exit tax. Actual implementation is (inevitably) more complicated, but today almost every large developed country in the world has an exit tax:

    • The US has an exit tax for people leaving the US tax system by either renouncing their citizenship, or giving up a long-term green card. Unrealised gains in their assets, including their home, become subject to capital gains tax at the usual rate, with deferral only available in limited circumstances – it’s perhaps the harshest exit tax in the world.
    • Australia has an exit tax – unrealised gains are taxed at your normal income tax rate for that year. There is a complicated option to defer.
    • Canada has an exit tax on unrealised gains; there’s a deferral option, and your home isn’t taxed at all.
    • France has an exit tax at an effective rate of 30% on unrealised capital gains, with a potentially permanent deferment if you’re moving elsewhere in the EU, or to a country with an appropriate tax treaty with France.
    • Germany has an exit tax approaching 30% on unrealised capital gains. If you’re moving elsewhere in the EU you used to get a deferral; from the start of 2022 you instead have to pay in instalments over seven years.
    • Spain has an exit tax with a deferral option (if you’re moving within the EU or to a country which has a double tax treaty with Spain).
    • The Netherlands has an exit tax on private company holdings, pensions and some other savings products, with an option to defer within the EU, and in other countries if security is provided.
    • New Zealand’s quasi-capital gains tax regime is now adding an exit tax.

    The only two large developed countries that don’t have an exit tax are the UK and Italy.

    Exit taxes are greatly complicated by EU law, which imposes numerous (and vague) restrictions on how exit taxes can work. That facilitates loopholes – France, Germany and others are engaged in a long term battle of attrition with the EU over how far their exit taxes can go.

    So one new freedom the UK has post-Brexit is the ability to impose our own exit tax that the CJEU can’t stop.

    There are, however, some important arguments against:

    • The principled argument: tax competition is an unalloyed good. People have a right to live where they wish and shouldn’t be forced (directly or indirectly) to stay in the UK.
    • The practical argument: people (like Mr Storonsky) will be less willing to come to the UK if we have an exit tax. This must be true; however when most other large developed countries do have an exit tax, it’s unclear what their options are.
    • A corollary of that: the existence of an exit tax will prompt entrepreneurs to leave the UK at an earlier point than they do now. Take Mr Storonsky as an example. If we had an exit tax then perhaps he would have left the UK in 2017 when the business was valued at around £50m. He would have had a roughly £3m exit tax liability which he would have deferred. Then at the eventual listing he would have made billions of pounds tax free, and then finally paid his deferred exit tax. In this scenario, the exit tax made very little revenue. We missed out on years of income tax on his remuneration and dividends. And wider consequences: Revolut would plausibly have had less activity in the UK if its founder and CEO wasn’t based here.
    • A more immediate practical concern: implementing an exit tax is a high risk endeavour. If the belief takes hold that the Government will introduce an exit tax then people will leave before the exit tax bites; even speculation about exit taxes can be economically damaging. Norway recently introduced an exit tax to protect its wealth tax – and it experienced an immediate wave of exits.
    • An exit tax requires valuing illiquid assets like private company shares – that’s notoriously difficult and subjective. Although, unlike a wealth tax, an exit tax with deferral enables valuation with the benefit of hindsight, and mostly won’t create liquidity issues.

    3. Losing entrepreneurs is a price worth paying

    This argument goes something like:

    • It’s a shame that Mr Storonsky has left the UK, but he created a valuable UK business, and that greatly benefits the UK in terms of economic growth, jobs, and (perhaps most importantly) the service Revolut provides its customers.
    • Those benefits are far more important (quantitatively and qualitatively) than a few billion pounds of capital gains tax revenue. Mr Storonsky might not have ever come to the UK if he hadn’t viewed the UK as an open economy. There is evidence that “star” inventors’ location choices are heavily influenced by top tax rates.
    • An exit tax would change all that. A signal that the UK no longer welcomes entrepreneurs, but seeks to trap them. Worse, it would be seen by many as retrospective taxation – they arrived in the UK expecting tax to work in a particular way, and now that changes without warning. People would worry about further quasi-retrospective changes.

    This is a rather boring and defeatist argument for the status quo. That doesn’t mean it’s wrong.

    Footnotes

    1. Which he almost certainly couldn’t at the IPO. There would be a “lock-in” requiring him to hold most of his shares for a period, and then even after that it would be unwise for him to make very large disposals in a short period of time. ↩︎

    2. Commentators have correctly pointed out that this isn’t quite right. Dubai was built as an oil-rich city-state, but it transitioned to other drivers of growth as its oil income diminished. Its success post-financial crisis was, however, thanks to a bail-out from oil-rich Abu Dhabi. ↩︎

    3. See page 22 of the OECD report for more on this. I’d expect a larger effect in the US, where much more investment is domestically-directed by US individual investors. Also note that CGT as it applies to companies, rather than individuals, is much more economically significant. ↩︎

    4. Capital losses can only be deducted from capital gains. That’s distortionary and unfair – CGT means that Government takes 24% of any gains; only fair that it should also share in any losses. 30 years ago such a change would have triggered numerous avoidance schemes generating phantom “capital losses” to shield income from tax; modern anti-avoidance rules and principles make this very unlikely to happen. ↩︎

    5. There is an argument, strangely common on the Left, that wealthy people don’t/won’t leave the UK for tax reasons. The argument is refuted by the number of wealthy Brits who moved to Monaco, Dubai, etc, of whom Mr Storonsky is merely the latest. ↩︎

    6. Sometimes you have to provide some form of guarantee so you can’t just promise you’ll pay in future, and then scarper ↩︎

    7. The EU has discussed requiring Member States to have an exit tax, but thusfar it only has an exit tax for companies. ↩︎

    8. It’s an interesting question why that is. Perhaps because the UK didn’t have capital gains tax at all until 1965 (later than most other countries. The US taxed capital gains in the same way as income, right from the establishment of the modern Federal income tax in 1913. ↩︎

    9. The UK’s double tax treaties somewhat complicate the creation of an exit tax, because we often give up our right to tax non-residents on their capital gain. Solving this is in part a matter of drafting (deem the tax to apply on the last day they were UK resident) and in part a matter of overriding treaties (they’re supposed to be used to prevent double taxation, not to avoid taxation altogether). ↩︎

    10. If the UK introduces an exit tax then it’s both fair and necessary that we also “rebase” new arrivals’ capital gains at the point they enter. Today, if someone arrives in the UK with unrealised capital gains and the immediately makes a disposal, the UK taxes them on all the historic gain. The flipside of an exit tax is that a new arrival should only be taxed on the gain they accrue whilst in the UK. ↩︎

    11. Some would also say an exit tax would deter entrepreneurship. I am sceptical – there’s very little actual evidence that entrepreneurial activity is influenced by capital gains tax considerations. Indeed arguably it would be irrational for business formation to be influenced by CGT, given that it will usually be 10+ years between founding a company and receiving a payoff, and the CGT rules at the time of that payoff will likely bear little relation to the rules at the time the business is founded. And see page 22 of the OECD report. ↩︎

    12. The current popularity of Italy amongst some high net worth individuals perplexes me. The Italian tax authorities have a reputation for acting capriciously – promises made today to entice new arrivals are unlikely to deter them from pursuing people aggressively in five years’ time. ↩︎

    13. Although that was a tax on net wealth rather than uncrystallised gains – a CGT exit tax should be expected to have a less dramatic effect. ↩︎

    14. Purists will say, correctly, that valuation should not involve hindsight. Realists will say it always does. ↩︎

    15. “Mostly” because: what happens if I exit the UK whilst holding private shares that have just been valued at £1bn. A year later, the company goes bust. Do I have to pay £240m CGT with money I don’t have? Attempting to deal with this by permitting the deduction of future losses creates avoidance opportunities – imagine I exit the UK with £1bn of private shares, then pay myself (or a family member) £1bn dividends so the company ends up worth £0 and is wound up. Do I get to deduct that loss? It’s practically difficult for UK anti-avoidance rules to apply if all the activity in question is happening outside the UK. ↩︎

    16. Realistically it has to be without warning, for the reasons set out above. ↩︎

  • The problem with unregulated tax advisers: a scheme from Property118 that could cost clients £100k+

    The problem with unregulated tax advisers: a scheme from Property118 that could cost clients £100k+

    Most of the HMRC losses from tax avoidance aren’t from multinationals or billionaires – they’re from small businesses, who’ve often been sold disastrous schemes by unregulated advisers. It’s a mis-selling problem as much as a tax problem. This report presents one example – but the internet is full of many, many others.

    The media focus on inheritance tax has created an irresistible opportunity for unregulated tax firms. One of those firms is “Property118” – they market “family investment companies” to landlords as an inheritance‑tax magic bullet. But the structure is based on a basic misunderstanding of inheritance tax, and will leave many clients with six-figure tax bills – not when they die, but now.

    This isn’t the first time Property118 has been caught selling a structure they don’t understand. We’ve written about them before, which resulted in HMRC issuing a “stop notice” to require that Property118 stop promoting their “substantial incorporation” scheme.

    But the problem is much wider than one firm – this structure is being widely promoted to landlords, farmers and others. As long as tax advice is unregulated, HMRC will continue to lose tax revenue to technically hopeless avoidance schemes, and taxpayers will continue to get ripped off.

    Updated 8 October 2025 – we’ve now reviewed several sets of company articles drafted by Property118. The “growth shares” appear to have been badly mis-drafted. We’ve added a section below covering the consequences of that.

    Contents
    The Property118 growth share schemeProperty 118 – the drafting errorsProperty118 – the valuation problemAn example DCF valuationOther approachesThe consequences for Property118’s clientsThe long-term consequencesIs Property118 regulated or insured for tax advice?Are Property118 breaking the law?How the pros do itThe problem of unregulated advisersWho should landlords turn to for advice?

    The Property118 growth share scheme

    The scheme works like this:

    • You have (say) a £5m property rental business in a company, and you’re worried about a £2m inheritance tax bill when you die.
    • The company issues you shares that give you complete control of the company, entitle you to all dividends, and entitle you to all the current £5m capital value of the business (so-called “freezer” shares).
    • The company then issues your children with shares that entitle them to all capital growth of the company over £5m – “growth” shares.
    • The growth shares are put into a discretionary trust that (in practice) gives you some assurance that the kids can’t run off with the shares, lose them in a divorce, etc.

    We’ve saved a copy of the Property118 family investment company guide here.

    Tax advisers often caution people against using trusts, because a gift into trust creates a “chargeable lifetime transfer” – inheritance tax at 20% of the value of the property put into trust (after the nil rate band), and the trust is then liable to a 6% “anniversary charge” on its value every ten years.

    But Property118 and lots of other unregulated internet tax advisers have a neat solution – they say the “growth shares” have no current value – they only entitle your children to value over £5m, and the company is currently worth £5m. So the trust isn’t taxed:

    That’s clear that this is an avoidance scheme. Value supposedly vanishes from the parents’ “freezer” shares, and thus their estate, without ever appearing and being taxed in the “growth shares”.

    And, like most avoidance schemes, it doesn’t work.

    Property 118 – the drafting errors

    The original version of this report was written assuming that Property118 would correctly draft the articles of their family investment companies and the terms of the growth shares.

    We have since (8 October 2025) reviewed several sets of Property118 documentation and that assumption appears to be incorrect. Here’s an anonymised version of one set of articles:

    The “Q Ordinary shares” here are the non-voting growth shares. The “A Ordinary shares” and the “B Ordinary shares” are the freezer/voting shares. There are also non-voting shares C to P which can receive dividends.

    The share rights work as follows:

    • The shares are specified in Article 9.2 as “Each ‘Q’ Ordinary share carries no vote nor dividend right. Each ‘Q’ Ordinary Share is entitled to participate in a distribution on a sale or winding up of the company.”
    • Article 9.4 then says “In the event that the proceeds are more than £900,000 the first £900,000 shall be distributed to the ‘A’ Ordinary shareholders and the ‘B’ Ordinary shareholders in proportion to the nominal value of shares held. Any proceeds in excess of £900,000 shall be distributed to the holders of the ‘Q’ Ordinary shares in proportion to the nominal value of shares held.”
    • There is no definition of “proceeds” and no mechanism for paying any sale proceeds to the Q shareholders. Obviously the company can’t do this, as it doesn’t receive sale proceeds. Often there would be “tag-along” rights, which require that minority/non-voting shareholders participate in any sale – such provisions are absent.
    • Article 9.5 says “Subject to the provIsIons of the Act, the directors may, in their absolute discretion, declare final and/or interim dividends on any class or classes of shares and when so declaring may vary the dividend payable between the different classes of shares and may determine that any class or classes may receive a dividend and that another class or classes shall not, and Article 30 of the Model Articles shall be modified accordingly.”
    • There are none of the usual “class rights” one expects to see to protect the interests of minority or non-voting shareholders. The only protection they have are the statutory pre-emption rule and the statutory prohibition against amending class rights without the class’s consent.

    This means that the holders of the A and B shares (the parents) can ensure all rent/profit and proceeds from any asset sales are paid out on their shares as dividends. The growth shares don’t receive a penny unless the A and B shares vote to wind up the company.

    The A and B shareholders could go even further, and issue an additional 10,000 Q shares to themselves in consideration for £100 of gilts.. The original Q shares would then receive only a thousandth of any eventual winding-up proceeds.

    The valuation specialists were split on whether this means the growth shares have no value at all during the life of the company, or in fact have some small residual value (essentially because they are a nuisance for the A and B shareholders).

    However it’s clear the growth shares leap in value upon any decision to wind-up the company at a point when it has over £900k of net assets. The leap in value is a result of that decision – and the decision will reduce the value of the A and B shares, and therefore the parents’ estates. It will therefore either be a straightforward transfer of value for inheritance tax purposes, or the issue of the shares and decision to wind up will be “associated operations” with broadly the same result. In either case there would be a “lifetime transfer” for inheritance tax purposes. As the Q shares held by a trust, it would then be a lifetime chargeable transfer giving rise to an immediate 20% inheritance tax charge (and more if the parents then die within seven years). The value-shifting rules will likely also apply and deem an immediate capital gains disposal by the parents, given they are taking an action which reduces the value of their holding.

    This is all very bad result for Property118’s clients. The aim of removing value from the parents’ estate has not been achieved, and there will be an up-front IHT and CGT charge at the point value is paid out on the Q shares.

    The inheritance tax and company law specialists we spoke to were split on whether the unusual terms of the Q shares are a mistake (e.g. drafted by someone who doesn’t understand how class rights work) or a (failed) attempt to find a loophole by deliberately creating valueless shares. Either way, the peculiar nature of the Q shares mean they are likely regarded as “contrived or abnormal” and therefore Property118 should have disclosed the structure under the Disclosure of Tax Avoidance Schemes (DOTAS) rules. We discuss the implications of that further below.

    The remainder of this report will proceed on the basis that it was a mistake and that in at least some cases Property118’s structure has correctly drafted growth shares. The consequence of that is a worse tax result, including a large up-front tax liability.

    Property118 – the valuation problem

    The proposition that the growth shares have zero value is easily tested: would anyone holding them agree to sell for £1, or £1,000? Of course not.

    Or another way to test it: would a third party agree to buy the freezer shares for £5m, knowing there is no possibility of capital growth? Of course they wouldn’t.

    The growth shares are a one-way bet: if the business increases in value, then the growth shares increase in value; but if it doesn’t then the growth shares can simply be discarded. An asset like that always has value (and always reduces the value of the freezer shares). The fact that the payoff from the growth shares is contingent on future growth doesn’t mean its present value is nil; it means its value must be discounted for risk and uncertainty.

    Determining the value isn’t easy, but it’s not particularly hard either. Inheritance tax requires value to be determined by asking what a hypothetical purchaser would expect to pay in the open market. There are plenty of cases applying this principle, and it’s certainly HMRC’s approach.

    There are several ways to value these kinds of shares. The most straightforward is to carry out a discounted cash flow calculation by looking at the different outcomes and weigh them by probability.

    Here’s a simplified example.

    An example DCF valuation

    Looking at Property118’s own case studies, let’s take a property business worth £5m.

    We need to start by calculating the expected value of the business after (say) ten years. Property118 say a “deliberately cautious” result would be a 6% compound growth rate:

    Let’s assume there’s a 50% chance the business indeed experiences 6% compound growth each year. Then assume there’s a 25% chance the business doesn’t grow at all, and a 25% chance it grows by 8%. (It’s important to stress that this is a simplified illustrative example: a real valuation wouldn’t just pull three numbers out of the air.)

    Let’s then assume value is realised on a sale/winding‑up in 10 years. That means there’s a 50% chance the business ends up being worth £9m, a 25% chance it’s still worth £5m, and a 25% chance it’s worth £10.8m . A weighted average of those figures tells us the expected value of the business in ten years’ time is £8.4m. The growth shares will be worth that minus the initial £5m value – so the expected value of the growth shares in ten years’ time is £3.4m.

    But we can’t stop there.

    • The kids won’t receive that £3.4m for ten years, so we should discount the figure appropriately – money in the future is always worth less than money today, particularly if there’s a high risk the money won’t in fact be received. This is reflected in a “discount rate”. Because the growth shares are deeply subordinated and only participate in upside, their required return – and therefore the appropriate discount rate – must be higher than the expected growth rate of the underlying property business. If we use a 10% discount rate then that reduces the £3.4m figure by about 60%.
    • And the growth shares have no voting rights – often one would see a 10% discount for that.
    • The growth shares are illiquid/aren’t marketable and (on our assumption) the holder won’t receive any return for ten years. We should apply a 25% discount for that.
    • These three factors together take the value of the growth shares to just over a quarter of their expected value in ten years’ time – £890k.

    So our conclusion is that the growth shares are worth approximately£890k when they’re issued. Of course a real valuation would be much more sophisticated than this – but HMRC would expect to see a DCF valuation as part of the analysis.

    We’ve put this example into a spreadsheet that you can download here.

    Other approaches

    There are other more sophisticated ways to value growth shares – for example treat them as a call option and use the Black‑Scholes equation. This will often result in a higher valuation than the simple approach above (although it’s more typically applied to listed than unlisted shares).

    So for now let’s stick with our very simplified discounted cash flow valuation estimate for the growth shares: £890k at the point the company is established. The simplistic approach we took, and the lack of any real-world basis for our assumed growth figures, means that a defensible figure for a real £5m property business could absolutely be higher or lower; the point of our example is to demonstrate that it is not zero, and is plausibly around £1m.

    The consequences for Property118’s clients

    That £890k value implies an unexpected up-front inheritance tax charge of £113k.

    If the taxpayer dies within seven years then there will be additional inheritance tax to pay – it’s treated in much the same way as a gift (except that up to half the tax was up-front). If the taxpayer doesn’t die within seven years then there won’t be additional inheritance tax to pay – but if the taxpayer had simply made a gift to their children then there would have been no inheritance tax on it at all.

    This is all a very bad result for a structure that’s marketed as saving inheritance tax. Worse still, Property118 seem to encourage people to move into these structures and incur large capital gains and stamp duty bills, all on the promise of an inheritance tax saving.

    We expect that HMRC will open an inheritance tax enquiry into anyone setting up a family investment company with growth shares that were supposedly valued at zero. HMRC will, however, not be in a hurry because of the way time limits work for inheritance tax.

    Someone making a chargeable lifetime transfer is required to report it to HMRC using form IHT100 (with IHT100a where appropriate). We expect Property118’s clients won’t submit a return – that means HMRC will have 20 years in which to investigate and assess inheritance tax. If a return was submitted then the usual limits apply, six years if a taxpayer was careless and four years otherwise.

    The worst possible result is that HMRC don’t investigate until after the taxpayer dies – their children will then have to face an HMRC investigation at the worst possible time.

    HMRC is likely to seek to charge penalties on the basis that failing to carry out a proper valuation and/or submit a return was careless.

    Property118 have variations on this structure which will likely trigger other adverse tax consequences for their clients:

    • If value is shifted from founders’ shares to trust‑held growth shares via changes in share rights, the value-shifting rules can apply to deem a capital gains tax disposal by the founders. The claim in this Property118 case study that there’s no capital gains tax on the creation of growth shares is false.
    • If there’s no trust, but growth shares are issued directly to a director’s children for less than market rate, the employment-related securities rules are potentially in point.
    • Property118 sometimes advise that the family investment company should issue redeemable preference shares to the founders, and that these can later be redeemed free of capital gains tax. This is incorrect. After an s162 incorporation, the capital gain on the underlying property assets is “held over” into the preference shares, so disposal gives rise to a capital gain. But that’s the best case – if it’s a partial disposal (as the case study suggests) then the clients may well be subject to income tax (and not capital gains tax) under the transactions in securities rules.

    There are also potential non-tax consequences: most importantly, anyone using the structure is likely to find it much harder to obtain loan finance.

    The long-term consequences

    Trusts are subject to a 6% ten-yearly anniversary charge on the trust’s value above the available nil‑rate band. Property118 say this is a misconception:

    There is no inheritance tax concept of “determinable value” – Property118 appear to have made it up. Even if the growth shares were hard to value, you’re still required to prepare a valuation. In reality, property is one of the easiest assets to value – much more straightforward than many trading businesses.

    But at least Property118 mention the 6% anniversary charge – the 20% entry charge isn’t mentioned once in their brochure, and only incidentally on their large website.

    We can estimate what the 6% ten-yearly charge will look like if we continue the approach in the DCF example above. On that basis, in ten years’ time the company’s property would be expected to be worth £8.4m, with the growth shares worth £2.4m. The ten year anniversary charge would be around £120k.

    There’s also a 6% charge on exit from the trust, broadly proportionate to the time since the last ten-yearly charge.

    The other long-term consequence is that the arrangement has failed to cap the value of parents’ shares for their estate at £5m. If the property is worth £8.4m and the growth shares are worth £2.4m then it follows that the freezer shares and voting shares are together worth £6m, not £5m. Value can’t just disappear. How can mere voting shares become valuable? Because the holder of the growth shares needs the agreement of the holder of the voting shares to release value. The higher the discount we apply to calculate the value of the growth shares, the more value we push into the voting shares.

    That is a problem for the structure, because the voting shares are part of the parents’ estate. The whole point of the structure was to freeze the estate at £5m – but that ignored the power of the voting shares.

    Is Property118 regulated or insured for tax advice?

    Advisers like Property118 present technically wrong claims with great confidence.

    The truth, however, is revealed, at the back of Property118’s brochure:

    Property118 is unregulated and uninsured. They try to cover themselves by saying clients should ask their other advisers to “review and confirm” the correct legal and tax treatment. But note how the list of other advisers doesn’t include any qualified tax advisers.

    That leaves a Property118 client with no recourse if, as here, the tax advice is wrong. Worse, HMRC will likely charge penalties because the client was “careless” in relying upon an adviser who said they weren’t providing definitive advice.

    It’s possible Property118 misunderstood the outcome of the review of family investment companies which HMRC conducted in 2020 and 2021. HMRC concluded that they didn’t see a pattern of non-compliance, and saw no need for legislation. Some people saw this as the green light to use family investment companies for avoidance. That’s a bad mistake.

    Whatever the reason for Property118’s errors, they’re mistakes which we don’t believe any competent adviser would make. Even ChatGPT identifies the problem when presented with one of Property118’s case studies.

    Are Property118 breaking the law?

    In promoting the structure, Property118 may themselves have broken the law. The Disclosure of Tax Avoidance Schemes (DOTAS) rules require arrangements with a main benefit or purpose of obtaining a tax advantage to be disclosed up-front to HMRC. Property118 haven’t disclosed their structure under DOTAS; it’s unclear if they’ve ever properly considered the application of the rules.

    The Property118 brochure says that DOTAS doesn’t apply because “HMRC has never issued a Disclosure of Tax Avoidance Schemes (DOTAS) reference number for FICs”. This is a sales pitch, not a legal analysis. Property118 can’t possibly know if the statement is true (only in some cases does HMRC publish avoidance scheme details). Even if it is, it gives no assurance that their structure isn’t subject to DOTAS.

    We believe an actual application of the DOTAS rules shows that they probably do apply to the Property118 growth share structure:

    • DOTAS applies to a structure if (broadly speaking) its main benefits include the obtaining of a tax advantage and the scheme has one or more designated “hallmarks”.
    • It’s clear from the brochure that one of the main benefits is IHT mitigation.
    • The inheritance tax hallmark is likely to apply – the brochure shows that the scheme’s main purposes include obtaining a tax advantage, and the creation of the “growth” and “freezer” shares, and issuance at an undervalue, are likely “contrived or abnormal” steps (although we wouldn’t say that point is beyond doubt).
    • The premium fee hallmark may also apply. This is a reasonably simple structure, so when the brochure says Property118’s fees are “in the low-to-mid five-figure range”, it suggests to us that the fees in part reflect the (supposed) tax benefit.
    • The confidentiality hallmark seems unlikely to apply unless there are features that are not being included in the brochure and published case studies.

    It follows that the likely conclusion is that the structure should have been reported.

    If that’s correct, then Property118 are likely to incur penalties of £600 per day, which a tribunal can potentially increase to a maximum of £1m.

    How the pros do it

    “Growth shares” are a real thing. They’ve been issued by companies for decades as part of employee share schemes; they are also used by properly advised family investment companies.

    There are, however, two big differences between real growth shares and the scheme being sold by Property118:

    • Real “growth shares” usually have a “hurdle” which is higher than the current market value of the business. They don’t entitle the holder to all value above today’s valuation of the business, but to all value above the hurdle. For example, the hurdle could be set at 25% above the current value of the business, with the growth shares entitled to all growth above (on our example figures) £6.25m. That greatly reduces the initial value of the growth shares.
    • Real tax advisers ensure there’s a proper valuation of the growth shares (here’s a good guide from accounting firm Price Bailey), using the kinds of approaches we summarised above. The unregulated advisers like Property118 don’t do this because they’re salesmen rather than qualified tax advisers, and are in search of a magic bullet that takes all future growth out of inheritance tax.

    There has been a surprising widespread practice of people trying to argue that growth shares with a hurdle have no day one value at all. That’s a much better structure than Property118’s but, as other commentators and advisers have noticed, it’s still not defensible (at least not without very careful and detailed valuation advice). HMRC fired a warning shot at the profession at a forum for advisers in September 2023, and we don’t expect there are many bona fide advisers still running this kind of argument.

    Given the hurdle shares still have value, there are various strategies advisers use to prevent an up front chargeable lifetime transfer. Most obviously it’s making sure the economics are such that the value is less than the nil rate band. Sometimes it involves structural solutions, such as the trustees using loans to acquire the trust interest – but that gets into quite difficult territory, and potentially into avoidance, with all the consequences that follow from that.

    We’re not aware of any real advisers claiming that growth shares just don’t count for purposes of the ten-yearly anniversary charge, because they “have no determinable value”. Property118 just made that up.

    Given the popularity of naive “growth share” structures, it may make sense for HMRC to publish a Spotlight warning people of the risks.

    The problem of unregulated advisers

    The government is moving to regulate the tax‑advice market, but the scope is narrow. New rules will require tax advisers who interact with HMRC on clients’ behalf to register with HMRC and meet minimum standards from April 2026 (with a short transition). HMRC’s aim is to control access to its systems and exclude agents who fail its “Standards for Agents”.

    But this regime only applies to people who act as agents with HMRC. It doesn’t cover consultancies that design and sell structures but leave tax returns and HMRC engagement to the client’s usual accountant. That means many unregulated promoters, like Property118, will likely sit outside the new registration requirement. Indeed they’ll have a competitive advantage over firms that have to be regulated.

    So we’re concerned the new regulation will create bureaucracy for small firms that aren’t doing anything controversial, but won’t impact bad actors.

    Who should landlords turn to for advice?

    Landlords, and anyone else needing tax advice, should use a regulated firm, and only deal with regulated professionals. If you’re speaking to a salesman, with no legal or tax qualifications, then our view is that you’re making a mistake, and potentially a very expensive one.

    You can check online if an adviser or their firm is regulated (either is fine). The main regulators are:

    Experience is also important. We’d suggest only using an adviser who’s been practising for at least ten years, or is supervised for a senior colleague who has that experience.

    Any regulated adviser should carry insurance, but it’s good to check this. Although note that the insurance does not simply pay out if something goes wrong; you would have to experience a loss, sue the adviser for negligence and win – the insurance then pays out, so you’re not limited to the funds available to the adviser/firm.

    Many thanks to R for the original tip, to S for their inheritance tax expertise, and to K and F for their valuation insights.

    Photo by Louis Reed on Unsplash

    Footnotes

    1. Note that it’s not either/or. We don’t believe any of the schemes we’ve reported on would survive HMRC challenge. However some schemes will “fly under the radar” and never be subject to an HMRC enquiry. Others will be subject to an enquiry, but HMRC will make a mistake, miss a deadline, or the taxpayer will win on a procedural point. So these schemes have two effects at the same time: loss of tax when HMRC fails to effectively challenge a scheme, and ripped off clients when HMRC does effectively challenge a scheme. ↩︎

    2. That’s looking only at the company; presumably there’s also a house and other assets, probably partially covered by the nil rate bands. ↩︎

    3. Gilts rather than cash so the statutory pre-emption rule doesn’t apply. It could be book tokens – any valuable non-cash consideration would suffice. ↩︎

    4. If done at a time when the Q shares were valuable then this could be challenged as unfair prejudice. However, for the reasons we mentioned in the previous paragraph, it’s debatable if the Q shares can ever be valuable. A challenge seems unlikely to succeed, particularly if the new shares were issued at an early stage, when the company is still at the £900k threshold. And this isn’t a variation of class rights, so section 630 won’t apply. ↩︎

    5. For example: winding-up could be more tax-efficient than paying dividends, as it enables capital gains treatment and a lower rate. So perhaps the A and B shareholders would agree to pay the Q shareholders some portion of their tax saving to entice them to agree to a compromise deal. It’s this kind of scenario which is why some of the valuation specialists we spoke to thought that the Q shares could have value in some scenarios – but not much. ↩︎

    6. Section 94 IHTA wouldn’t apply because it’s a transfer of value by the A and B shareholders, not the company. ↩︎

    7. Some people may object that the A and B shares are held by the parents, and they wish the Q shares to have value. That’s irrelevant for IHT purposes; the question is what value the Q shares would have in a market sale to a willing buyer. We can’t assume the parents would be doing that buyer a favour. ↩︎

    8. That’s plausible; Property118’s previous tax scheme suffered from incompetent drafting – with one bad drafting error replicated throughout (we believe) all their clients’ documents, which has left those clients in a very difficult position. ↩︎

    9. Even in the “mistake” scenario above, the growth shares have nuisance value. ↩︎

    10. i.e. £5m x 1.06 ^ 10. ↩︎

    11. i.e. £5m x 1.08 ^ 10. ↩︎

    12. i.e. 50% x £9m + 25% x £5m + 25% x £10.8m. ↩︎

    13. i.e. because 1/(1.10 ^ 10) = 0.39. The level of a discount rate is often a key area of dispute between taxpayers and HMRC – taxpayers arguing for a high discount rate reflecting the high risk and subordinated nature of the growth shares. HMRC responding that it’s appropriate for a relatively low-risk asset like a property rental business, where much of the “growth” is just compounding rents. The valuation specialists we initially spoke to felt that 7% was a reasonable number for this example, given that most of the capital growth would be compounding rents. Others thought a higher figure was more appropriate. We have therefore amended this report post-publication to show a 10% rather than 7% rate – the issues are the same regardless. ↩︎

    14. Important not to double count here; if a higher discount factor was used which reflected illiquidity then one wouldn’t also apply an illiquidity discount. ↩︎

    15. £3.4m x 0.39 x (1- 10%) x (1 – 25%). ↩︎

    16. Valuation is often said to be an art rather than a science – there will be a range of possible values. ↩︎

    17. We’re assuming no dividends are paid on the “freezer” shares, i.e. no “dividend bleed”. Any expected dividends would reduce the expected growth and therefore the expected value of the growth shares. ↩︎

    18. Note that it follows that the “freezer shares” retained by the parents must be worth something like £4.11m – i.e. the £5m value of the property portfolio less the value of the growth shares. Property118 assume that the freezer shares must be worth £5m, but a moment’s thought shows that this isn’t correct – real estate is much less valuable if the potential for capital growth is eliminated. ↩︎

    19. The discount rate has a huge impact on the result. It will reflect the level of risk in the business – the type of properties and (importantly) the level of debt/leverage. To give an idea of how the discount changes the result, on our assumptions a 5% discount rate implies the growth shares are worth £1.4m; a 9% discount rate implies they’re worth £1m. Only if the discount rate reaches an implausible 22% does the value of the growth shares drop below the £325k nil rate band, and the structure “work”. You can play with the discount rate and all the other assumptions in the spreadsheet. ↩︎

    20. 20% of a chargeable lifetime transfer of £565k (£890k after deducting the £325k nil rate band). That’s assuming it’s the trustees that pay; if the settlor pays, the tax has to be grossed-up. Note that IHT will arise whether the shares are given directly by the parents to their children, or the company issues them. ↩︎

    21. Another consequence: the taxpayer has used up their £325k nil rate band. The impact of this can be quite complex; there’s a 14-year look-back if a chargeable transfer into a trust is followed by a potentially exempt transfer within seven years, and then death within seven years of that. ↩︎

    22. The long limit is a consequence of the very long-term nature of inheritance tax planning. ↩︎

    23. If the properties have in fact significantly gone up in value then HMRC is likely to be more aggressive in pushing for higher day-one valuations. In principle valuation should not be affected by hindsight; in practice matters are less clear-cut. ↩︎

    24. Although note that if there is both a CGT charge and an IHT charge then an election can potentially be made for the CGT to be “held over“, i.e. deferred until the trust disposes of the shares. So in most cases there wouldn’t be a simultaneous CGT and IHT charge on the same disposal. The potential “gotcha” for users of tax schemes is that if HMRC take years to raise an enquiry, then the taxpayer may be out of time to make an election, and so could face double taxation. ↩︎

    25. Because lenders to property companies typically require share security over the property. Having split share classes, and one class held by a trust, is a practical and legal complication which many lenders will not accept. The structure is therefore likely to dramatically reduce the pool of potential lenders. ↩︎

    26. i.e. if we calculate the expected value of the company after ten more years. The expected year‑20 payoff is then discounted back 10 years, then adjusted for non‑voting and illiquidity, in the same way as we valued the shares for day one. ↩︎

    27. £2.4m minus £325k x 6%. ↩︎

    28. As noted above, the “freezer” shares will be worth less than £5m because they are an interest in property without any upside (albeit they have some “downside protection”). ↩︎

    29. HMRC are well aware of the valuation issues caused by special classes of voting shares. ↩︎

    30. And when proper tax advisers have historically challenged tax planning from the likes of Property118, the response has often been derision and bullying. ↩︎

    31. See the Lithgow and Anderson cases, e.g. “Nor would we expect such a taxpayer to obtain another professional opinion again unless there is reason to do so, of which the taxpayer ought to reasonably be aware, such as that any qualification put upon the advice by the firm may limit its reliability”. ↩︎

    32. As an aside, it’s a very bad idea to use ChatGPT or other LLMs for tax advice, but a good idea to use them to see if a point has been missed, provided you treat all output with scepticism and check primary sources with great care. ↩︎

    33. Something Property118 have misunderstood in the past is that whether DOTAS applies is separate from whether a scheme works. This scheme fails whether or not DOTAS applies to it. In principle a scheme could succeed even though DOTAS applies to it (although that would be a rare case these days). ↩︎

    34. On our example numbers, a 25% hurdle would cause the initial value of the growth shares to fall by more than 50%. A 50% hurdle – an entitlement to all growth above £7.5m – could cause the growth shares’ value to fall to almost nothing. Noting again that our assumptions and valuation methodology is just illustrative, and any assertion of negligible value would likely be contested by HMRC. But it’s completely realistic that in some cases the value would end up less than the nil rate band. ↩︎

    35. The brochure talks about the importance of valuation in relation to the property portfolio itself, but shows no awareness that the growth shares themselves need to be valued. ↩︎

    36. A common habit of disreputable advisers is misrepresenting insurance as if it’s an automatic payout if HMRC challenge the structure. ↩︎

  • PPE Medpro made £200m but never filed full accounts. The law should change.

    PPE Medpro made £200m but never filed full accounts. The law should change.

    PPE Medpro is the company which provided £200m of PPE to the Government in dubious circumstances, of which £122m was faulty. Reports suggest it made £65m profit – but we can’t know for sure. Its finances are a mystery, because it was allowed to file only abridged accounts.

    Why? Because under UK law, PPE Medpro counted as a “small” company. The definition of “small” is a relic of a European compromise nearly fifty years ago. It looks at balance sheets and headcounts, not just turnover — meaning a firm could, in theory, book trillions in sales and still be “small.”

    That’s absurd. This report sets out a simple fix: require full accounts from firms of real scale, while keeping genuine small and micro businesses out of red tape.

    When a £200m company is “small”

    Something’s odd about PPE Medpro’s accounts for the year it made £200m from selling PPE to the Government. There’s a balance sheet, but no director’s report and no profit and loss account. We don’t know how much revenue it received, or how much profit it made.

    Why?

    Because the company classified as “small”.

    PPE MEDPRO LIMITED Balance sheet statements For the year ending 5 April 2021 the company was entitled to exemption under section 477 of the Companies Act 2006 relating to small companies. The members have not required the company to obtain an audit in accordance with section 476 of the Companies Act 2006. The directors acknowledge their responsibilities for complying with the requirements of the Act with respect to accounting records and the preparation of accounts. The members have agreed to the preparation of abridged accounts for this accounting period in accordance with Section 444(2A). These accounts have been prepared in accordance with the provisions applicable to companies subject to the small companies regime. The directors have chosen to not file a copy of the company's profit & loss account. This report was approved by the board of directors on 31 March 2022 and signed on behalf of the board by:

    The intention of the small company exemption is that we shouldn’t be over-regulating small companies. That’s a perfectly rational policy. It is, however, much less rational that a £200m business also qualifies for the exemption.

    But PPE Medpro absolutely did qualify, because of the strange way the small company definition works.

    That’s an anomaly, but one that’s far from unique to PPE Medpro. Most of the fake companies and tax avoidance scheme promoters we’ve investigated use the same exemption. They’re not breaking the rules – the problem is that the rules are irrational.

    The rules

    The rules say that a company is “small” if it has any two of the following:

    • a turnover of £15m or less
    • £7.5m or less on its balance sheet
    • 50 employees or less

    It’s then not required to prepare audited accounts, or publish a profit and loss (P&L) account, showing its turnover, expenses, tax and profit.

    We don’t think many people would describe a £200m turnover as “small”. But it’s the “any two” in the small company rule which is critical. In its 2021 accounts, PPE Medpro had a balance sheet of £5m, and three employees. So PPE Medpro’s large turnover didn’t stop it being small, because it satisfied the other two conditions. Indeed it would have remained “small” even if it had a trillion pounds of revenue..

    There are more relaxed rules for “micro” companies, who can file very abbreviated accounts. A company will be a micro-entity if it has any two of the following:

    • a turnover of £1m or less
    • £500,000 or less on its balance sheet
    • 10 employees or less

    Again, £1m doesn’t seem very “micro” – and, again, you can still qualify as a “micro” company with a trillion pound turnover, provided the balance sheet and number of employees is small.

    The history

    How did we end up with such a weird set of conditions for the small company accounts exemption?

    Until the early 1980s, all UK companies had to file full accounts with Companies House. The Companies Act 1981, implementing an EU directive, first allowed “small” companies to file abbreviated accounts without a profit and loss account or directors’ report. Later Acts – particularly the Companies Act 2006 and subsequent regulations – progressively relaxed the rules further, introducing micro-entity and abridged accounts. Over the next few years, requirements were loosened further so that, today, small companies can file “abridged” accounts and micro companies “micro-entity accounts”. HMRC still receives the profit and loss accounts for all companies, but Companies House does not.

    Prior to Brexit, the UK wasn’t free to create its own rules for when a company could file abridged accounts. We had to adopt the small company definition which originated in Article 11 of the Fourth Company Accounts Directive (now in the EU Accounting Directive). The “two out of three” was a classic EEC/EU compromise from back in 1978, and – like many such compromises – has become badly outdated but is very hard to change.

    Back in the 1970s it was reasonable to assume that large businesses had lots of staff and big balance sheets. The modern world of digital and financial companies, globalisation, contractors and intermediaries breaks those assumptions – it’s common to see trading businesses with large revenues but tiny head-counts and light balance sheets. Conversely, we often see financial businesses with large balance sheets but small revenues and head-counts. These kinds of companies are “large” by any sensible definition, but “small” by the actual definition – so they get to file abridged accounts. Only after two years of not being small are full accounts required.

    This breaks the basic deal of incorporation: you receive the benefit of limited liability, but in return you disclose the key elements of your business to the world (and, in particular, to your customers and counterparties). It’s self-evidently good for business that (e.g.) someone considering contracting with a firm can immediately see its accounts online. And it’s self-evidently bad for transparency that some companies which are realistically “large” like PPE Medpro, get to shroud their affairs in secrecy.

    The Government’s solution

    The recent focus on anti-corruption measures prompted the last Government to pass the Economic Crime and Corporate Transparency Act. This requires that all companies have to file a profit and loss account from 2027. The concept of “abridged” accounts is eliminated, and all companies will be required to file their accounts electronically using commercial software (the current simple web-filing option would disappear).

    This has caused considerable disquiet for some businesses.

    There have been concerns about privacy. Trade bodies have warned that publishing even a summarised P&L could expose margins to customers and larger suppliers and weaken negotiating power. That is unpersuasive – full P&Ls were published prior to 2006, and there’s no evidence this was problematic.

    There have also been concerns around cost. This is more persuasive. Companies already prepare full statutory accounts for HMRC every year as part of their CT600 corporation tax return – and most large companies will already do this using commercial software, so uploading to Companies House will simply involve pressing a button. Some small and micro companies will not; so the new rules really would mean more cost and bureaucracy.

    It’s therefore easy to understand why there were reports in the press back in July that the Government may be about to scrap the changes. Nothing has happened yet – the regulations are still in place requiring full P&L to be filed by 2027.

    The evidence

    The conventional economic view is that financial openness promotes more efficient resource allocation – and there are a large number of studies that observed this effect in practice.

    But there’s also a downside. There’s convincing evidence from a pan-EU study, that requiring small companies to disclose financial accounts can (at the margin) reduce their innovation. And a recent study of German firms found that, for very small firms, the costs can exceed the benefit.

    This suggests that we shouldn’t be looking for a “one size fits all” solution, but that we should calibrate different levels of reporting to different types of firm. And it’s critical that the administration is as straightforward and frictionless as possible.

    A more nuanced solution

    The principle is straightforward: if you want limited liability, you owe the public basic transparency. The only carve-out should be for businesses that are genuinely small – not firms turning over hundreds of millions. And even small businesses should provide basic information.

    So here’s our proposal: to qualify for exemption from filing full accounts, a company could be required to meet all of a turnover, balance sheet and employee condition. The thresholds could (for example) be set at turnover of £1m, balance sheet of £1m and ten employees. Once a threshold is breached then full accounts should be required immediately, without a year’s grace period. The aim should be that a coffee shop qualifies but the likes of PPE Medpro do not.

    And companies that qualify for the exemption should be required to state their turnover and profit (but no other details from their P&L). That should all-but-eliminate compliance cost, but ensure that key financial information is made available.

    Finally, the threshold for mandatory audits should also be an “all” test, with (for example) all companies with turnover of £20m, balance sheets of £10m or 60 employees required to obtain audited accounts.

    Photo by Jakub Żerdzicki on Unsplash

    Footnotes

    1. Current assets £4.972m and net assets £3.890m – it’s the gross amount that “counts” for this purpose. ↩︎

    2. The thresholds were lower in 2021 than they are today, but even at today’s higher thresholds, PPE Medpro would clearly be “small”. ↩︎

    3. Regulations in 2013 introduced micro‑entity accounts, and regulations in 2016 created the “abridged” preparation option and “filleted” filing choice for small companies. ↩︎

    4. Both with the option of omitting their profit and loss account; an option that’s almost always taken. ↩︎

    5. There’s also evidence that an audit requirement reduces dividends (presumably because companies are required to be more conservative in determining whether they have sufficient profits). ↩︎

    6. It seems fair to raise each of the thresholds above where they are at present. ↩︎

  • Did Keir Starmer use a trust to avoid inheritance tax?

    Did Keir Starmer use a trust to avoid inheritance tax?

    When Sir Keir Starmer gave a field to his parents, he used a “life interest trust”. This meant that, as its value grew from £20k to £300k, it was outside his parents’ inheritance tax estate.

    UPDATE: 10am Sunday 28 September. Sir Keir just told Laura Kuenssberg that he didn’t create a trust. That is hard to understand when The Sunday Times has been asking Sir Keir about a trust for a month, and he at no point denied there was a trust. It also makes it hard to explain the form of words Sir Keir used in his letter to the Parliamentary Commissioner: “I immediately gifted the land to my parents for so long as they should live”. To a lawyer, that means a trust.

    In 1996, Sir Keir Starmer bought a seven-acre field behind his parents’ house so they could keep rescue donkeys. But the arrangement wasn’t quite as simple as a gift. The wording he later used suggests he created a life-interest trust: his parents could use the field for the rest of their lives, but ownership would revert to him when they died. That structure had the effect of keeping the field outside his parents’ estate for inheritance tax purposes. As things turned out, it likely made no difference, as their estate was probably below the threshold. But was the trust an accidental curiosity? Or a piece of careful tax planning – some would say tax avoidance – that ultimately turned out to be unnecessary?

    This is a story I’ve been working on with the Sunday Times. They’ve published their story today – this article gives the technical background, and my view of what it means.

    The facts

    The history is as follows:

    • In 1996, Sir Keir bought a seven acre field adjacent to his parents’ house and garden (long before he became an MP). The price was £20,000. There were donkeys on the field – the purpose of the purchase was so his parents could look after rescue donkeys.
    • Sir Keir became an MP in 2015. MPs are required to register land/property in the Register of Members Interests if it’s worth £100,000 or more. Sir Keir didn’t register the field.
    • Sir Keir’s mother died in 2015; his father died on 1 December 2018. The net value of their estate (mainly their house) was £374,091. Mr Starmer was an executor of their estates.
    • In 2020, the Daily Mail reported that the field could be worth £10m.
    • In January 2022, Sir Keir had the field valued – it was worth more than £100,000 (but nowhere near £10m).
    • That means Sir Keir should have declared the field in the Register of Members Interests at some point. Soon after Sir Keir obtained the valuation, his office contacted the Parliamentary Commission for Standards to correct his entry in the register.
    • In May 2022, Sir Keir agreed the sale of the field, together with a strip of land previously owned by Sir Keir’s father. Sir Keir’s share of the proceeds was around £295,000.
    • In June 2022 there was an investigation by the Parliamentary Commissioner for Standards into Sir Keir’s failure to register the field, which ended in Sir Keir apologising and the register being retrospectively amended.
    Technical terms in this article
    Trust
    A legal arrangement where one person holds property for someone else’s benefit. Trusts are a fundamental feature of English law and arise in many ordinary personal and business circumstances.
    GOV.UK — trusts overview
    Beneficiary
    A person who is entitled to benefit from the property in the trust, even though they may not be registered as the legal owner of the property.
    Life interest trust
    A trust where someone has the right to use or receive income from property during their lifetime, and after they die the property passes to another person (often the settlor).
    Explainer from Osbornes Law
    Interest in possession (IIP)
    A present right to enjoy the income or use of trust property, without owning it outright. For example, the right to live in a house or receive rent from it (but not sell it).
    Nil rate band (NRB)
    The standard inheritance tax allowance (£325,000). This amount can be passed on free of inheritance tax. Any unused allowance can usually be transferred to a surviving spouse or civil partner.
    Explainer from Ross Martin
    Residence nil rate band (RNRB)
    An extra inheritance tax allowance (up to £175,000) when a home is left to children, grandchildren, or other direct descendants. It applies on top of the standard nil rate band.
    Explainer from Ross Martin

    The life interest trust

    I discussed the sale of the field with the Sunday Times earlier this year. I noticed a phrase Sir Keirr used in his correspondence with the Parliamentary Commissioner for Standards:

    Land in Oxted, Surrey 1. On 9th December 1996 I purchased the land in question. 25 2. I immediately gifted the land to my parents for as long as they should live but I did not transfer the legal title - that remained with me

    Most lawyers will read “for so long as they should live” as meaning Sir Keir created a life interest trust. That was my immediate view, and the Sunday Times instructed a KC who agrees.

    Sir Keir has neither confirmed nor denied that he created a trust – but it seems a fair assumption that he did (or surely the story would have been denied). (See the update at the top of this article)

    Sir Keir’s office says that, after the Sunday Times started asking questions about the arrangements, Keir Starmer engaged a leading tax KC to advise, and that all tax was fully paid.

    How a life interest trust works

    If we’re right that Sir Keir created a life interest trust, then it worked like this:

    • Sir Keir was listed on the land registry as owning the field.
    • His parents were beneficiaries of the land during their lifetime. They could use it as they wished, and receive any income from the land. But they could not dispose of it.
    • When his parents died, the trust ended and the land became wholly owned (legally and beneficially) by Sir Keir.

    I suspect a non-lawyer in Sir Keir’s position wouldn’t think to do this. They would either own the land themselves (but let their parents use it) or give it to their parents outright.

    Why not just let his parents use it? We don’t know, but we can speculate that they wanted his parents to “really” own the field, rather than just being permitted to use it. That is sometimes important to people.

    Why not a gift, and then inherit the land when his parents died? There are at least two possible reasons:

    • Parents often wish their children to share property equally, and their Wills reflect that. Sir Keir might expect to receive the field himself; that would require changing his parents’ Wills.
    • If he gave the field to his parents outright, it would have formed part of their estate for inheritance tax purposes. But property in a life interest trust that reverts to the settlor does not, because of section 54(1) of the Inheritance Tax Act 1984.

    So in a way the trust gives the best of both worlds: his parents owned the property when they were alive, but with no need to change their Will, and no need for probate when they die. And it potentially avoids inheritance tax.

    (However this is a very complex area, with laws that frequently change. Please don’t take anything in this article as advice.)

    Did Sir Keir actually avoid inheritance tax?

    This is certainly not a case where Sir Keir failed to pay tax that was legally due. But did the trust reduce the Starmer family’s inheritance tax bill?

    Sir Keir’s office told the Sunday Times that “Given the size of the estate, the inclusion or not of the field in their estate made no difference to the estate’s IHT liabilities.”

    How plausible is that?

    If there had been no trust, and the field had been included in his parents’ estate (at its sale value, then the net value of the estate would have been about £670,000. That’s significantly less than the £875,000 combined exempt amount from both parents’ £325k nil rate band plus his £125k residence nil rate band and her £100k residence nil rate band.

    In this scenario there was no tax to avoid – his parents’ estate was worth considerably less than the IHT threshold, and nothing he could have done with the field would have changed that.

    However those numbers assume that Sir Keir’s mother used none of her nil rate band or residence nil rate band, leaving his father with a £875,000 combined exempt amount. That’s a reasonable assumption, because most married couples hold their home as joint tenants (so it’s inherited automatically and not under the Will) and Will almost all (or all) of their other property to their surviving spouse. However if that assumption is significantly wrong – for example because Sir Keir’s mother gave gifts of more than £205k to someone other than her husband, then Sir Keir’s father’s estate would probably have had an inheritance liability if the field hadn’t been held on a lifetime trust.

    I’d therefore conclude that it’s possible that the trust reduced the inheritance tax bill, but Sir Keir has said it didn’t, and the facts are consistent with that.

    Did Sir Keir try to avoid inheritance tax?

    The short answer is that we don’t know.

    The residence nil rate band didn’t exist in 1996 and Sir Keir could have rationally expected rising property values or even the development potential of the field to result in his parents’ estate being subject to inheritance tax. He might have decided that a trust was therefore better tax planning than giving his parents the field. Whether we call that tax avoidance is a political/ethical question, not a legal question (but, either way, it wasn’t something HMRC would be able to challenge).

    Or it could just have been an experienced lawyer’s way of giving the field to his parents whilst they were alive, with tax not entering into Sir Keir’s calculation.

    Sir Keir hasn’t been willing to explain why he created the trust. All his team would say to the Sunday Times is:

    “Keir Starmer’s decision to allow his parents to use a field he bought them for £20k in the late stages of their lives had nothing to do with any tax considerations. He simply wanted to help his parents keep donkeys.”

    That doesn’t really answer the question. Nobody’s suggesting he let his parents use a field for tax reasons. The question is whether he created a trust for tax reasons.

    My personal view is that, if he did, this wasn’t tax avoidance – because the tax outcome he achieved was the same as if he’d owned the field himself but let his parents use it. That contrasts with some uses of trusts to (supposedly) magically eliminate tax liabilities – they are definitely tax avoidance, and usually don’t work (and may even constitute tax evasion).

    However there is no single legal definition of “tax avoidance”, and others may disagree. I’ve written about the difficulty of defining “tax avoidance”.

    Some disclosure: I’m a member of the Labour Party; I was previously a member of its senior disciplinary body (the National Constitutional Committee) but have stood down. I have no formal role in the Labour Party, and I advise policymakers in all parties. Generally that’s on “background”/unofficial: my one official role is that I’m a member of the SNP Scottish Government’s tax advisory group. I also participate in Government consultations, and speak to officials and occasionally politicians as part of those consultations (and have done so for many years, under previous Governments).

    Many thanks to Gabriel Pogrund and the Sunday Times. Thanks to S for her expertise in trust taxation.

    Footnotes

    1. The total price was £320,000, of which about £295,000 related to the field – we know this from the tax summary Sir Keir published for 2022. ↩︎

    2. This is sometimes called a “reverter‑to‑settlor” trust, because the property reverts to the person who created the trust – the “settlor”. A life interest trust is also sometimes referred to as an “interest in possession” trust, although there are interest in possession trusts that are not life interest trusts. ↩︎

    3. A loan would have had the same tax effect – i.e. Sir Keir loans his parents the funds and they purchase the field. But that requires them to sign documents and complicates probate – it’s a less attractive option. A lease (with peppercorn rent) would have been another approach, but if the term was over seven years then it would have to be registered at the Land Registry. ↩︎

    4. That is almost certainly wrong; the value at death was (on a straight-line basis) about 10% less than the sale value, but it gives us a conservative top-end estimate for the size of the estate. ↩︎

    5. The residence nil rate band was created in 2017 but could be transferred from a spouse who had died before then. ↩︎

    6. i.e. in this, very common, scenario the first spouse uses none of their residence nil rate band and little or none of their nil rate band. ↩︎

    7. In her Will or in the seven years before she died. ↩︎

    8. He couldn’t have anticipated future developments in IHT, either the long-term freezing of the thresholds or the introduction of the RNRB. ↩︎

  • Carter-Ruck: the libel firm trying to cover up that they’d acted for the $4bn OneCoin fraud

    Carter-Ruck: the libel firm trying to cover up that they’d acted for the $4bn OneCoin fraud

    Libel firm Carter-Ruck used the threat of legal action to protect one of the world’s largest financial frauds, OneCoin, which stole $4 billion from investors. Carter-Ruck’s client, Ruja Ignatova, is now one of the FBI’s ten most wanted fugitives.

    The Solicitors Regulation Authority is now prosecuting Carter‑Ruck partner Claire Gill for an improper threat of litigation. Carter‑Ruck’s response was to try to cover everything up, applying for anonymity and private hearings.

    We led a coalition of NGOs to press for open justice. The Solicitors Disciplinary Tribunal just ruled that Carter-Ruck was instructed to further a fraud and, as a result, the hearings will be open and all filings will be published.

    Wider questions remain about Carter-Ruck’s role – and this is not the first time they’ve helped protect a Ponzi fraud.

    July 2016

    Carter-Ruck acts for OneCoin

    Cryptocurrency website Coin Telegraph publishes an article saying OneCoin was a Ponzi fraud. Carter-Ruck writes threatening legal action if Coin Telegraph did not take down the article within 7 days.

    26 April 2017

    Carter-Ruck sends libel threats

    OneCoin investor Jen McAdam discussed accusations OneCoin was a fraud in a webcast. Carter-Ruck writes to her threatening legal action if she doesn’t take it down.

    July 2017

    Carter-Ruck and the FCA

    Carter-Ruck writes to the FCA and forces it to remove its consumer warning that OneCoin is unregulated and being investigated by the City of London police.

    12 October 2017

    OneCoin collapses

    OneCoin’s founder and Carter-Ruck’s client, Ruja Ignatova, is charged with fraud and money laundering in New York; two weeks later, she vanishes. OneCoin collapses — it’s a $4bn fraud.

    December 2023

    Referral to the SRA

    Tax Policy Associates files a detailed complaint to the SRA regarding Carter-Ruck’s conduct acting for OneCoin.

    6 Aug 2025

    SRA prosecution announced

    The SRA confirms it is prosecuting Carter-Ruck partner Claire Gill before the SDT.

    28 Aug 2025

    Anonymity & private hearings bid

    At an SDT case-management hearing, Carter-Ruck applies for an anonymity order and the case to be heard in private.

    2 Sept 2025

    Open justice & disclosure

    We lead a consortium of NGOs applying for full disclosure of the case and related documentation.

    15 Sept 2025

    The SDT ruling

    Our application succeeds; the SDT grants full disclosure. Carter-Ruck withdraw their anonymity application.

    Carter-Ruck and OneCoin

    Carter-Ruck is possibly the UK’s most well-known libel-specialist law firm. At some point in 2016 it decided to act for OneCoin and Ruja Ignatova.

    OneCoin claimed to be a cryptocurrency like Bitcoin. It wasn’t. There was no “blockchain” – OneCoin just made up prices, took investors’ money, and paid some out to other investors and kept the rest for themselves. It was a Ponzi fraud.

    Carter-Ruck should have known OneCoin was a fraud. The signs were obvious at the time. One look at OneCoin’s own publications showed price changes that were impossible for a real traded cryptocurrency:

    OneCoin self-reported price chart showing impossible step changes

    But Carter-Ruck either didn’t conduct proper due diligence, or didn’t care. They wrote aggressive letters to websites and unrepresented individuals threatening them with libel proceedings for making points that were self-evidently true.

    In January 2017, OneCoin suspended clients’ withdrawals of money, but continued to accept new funds. Semper Fortis, an obscure firm which had “audited” OneCoin in 2015 didn’t publish an audit for 2016 or 2017. As at April 2017 its website consisted of one page saying “under construction”.

    None of that bothered Carter-Ruck. In July 2017, they then wrote to the Financial Conduct Authority, pushing the FCA to take down its warning notice on OneCoin (which said that the City of London police were investigating). The FCA blinked, and took it down.

    This was all at a time when multiple countries had started to pursue criminal or enforcement proceedings against OneCoin:

    International action against OneCoin by July 2017

    OneCoin collapsed in 2017, and its executives are all now either in jail or on the run. Around $4bn was stolen from millions of investors, across 125 countries. Carter-Ruck’s client, Ruja Ignatova, is one of the FBI’s ten most wanted fugitives, with a $5m reward for information leading to her arrest.

    In 2023, The Bureau of Investigative Journalism published a report on Carter-Ruck, with a particular focus on its actions acting for OneCoin. We then compiled a detailed legal analysis of Carter-Ruck’s actions acting for OneCoin, looking at what they did, what they should have known at the time, and how they should have acted. We concluded that Carter-Ruck acted recklessly, should have known OneCoin was a fraud, and had breached the principles governing solicitors. We referred Carter-Ruck to the Solicitors Regulation Authority on that basis. On 6 August 2025, the SRA announced that they would be prosecuting the solicitor responsible, Claire Gill, before the Solicitors Disciplinary Tribunal (SDT).

    Carter-Ruck might at some point have shown signs of contrition, apologising for what (at best) was a terrible mistake, and promising to take steps to avoid repeating it.

    Instead Carter-Ruck tried to cover up their misdeeds.

    Carter-Ruck’s anonymity application

    Carter-Ruck applied to the SDT to anonymise the case, and requested private hearings. The supposed justification was to protect their clients’ legal privilege – a laughable claim, as legal privilege doesn’t apply where a lawyer is engaged to further a fraud. We expect the real reason was to protect Carter-Ruck’s reputation from being linked to OneCoin and their fugitive ex-client Ruja Ignatova.

    In other circumstances, Carter-Ruck might have achieved this without anyone finding out. However we were notified of the upcoming prosecution, because we’d made the original complaint. Representatives of the media were therefore present at the hearing, and were given an opportunity to respond to the anonymity application. There’s a detailed report of the hearing from investigative court reporter Daniel Cloake.

    Tax Policy Associates, together with the Bureau of Investigative Journalism, The Foreign Policy Centre, The Free Speech Union, and Spotlight on Corruption, then applied to the SDT for the exact opposite of what Carter-Ruck were asking for.

    We sought complete disclosure of everything: the prosecution documents, Carter-Ruck’s defence, and all the supporting documentation.

    We believe the public has a right to know how Carter-Ruck ended up helping fraudsters, and had a right to see how they answer that charge. Usually much of that documentation would be legally privileged; in this case we believed none of it would.

    We therefore made an application in line with privilege caselaw and the SDT’s disclosure policy.

    The Carter-Ruck documents

    Here’s Carter-Ruck’s application for the anonymity order:

    Here’s our application:

    The SDT granted our application, ruling that – on the balance of probabilities – Carter-Ruck was instructed to further a fraud and so legal privilege did not apply. The SDT ordered all materials to be published, with redactions to protect personal information.

    The Carter-Ruck/OneCoin SDT materials should be published next week. Carter-Ruck has withdrawn its anonymity application.

    Here’s the SDT decision:

    Carter-Ruck – zero contrition

    Most lawyers would be appalled at the thought that they hadn’t just acted for fraudsters, but had actually helped further the fraud. Carter-Ruck, however, aren’t showing even the slightest sign of contrition.

    The filings above reveal that Carter-Ruck are pursuing an aggressive defence which involves trying to obtain internal SRA papers.

    By this application, the Respondent seeks disclosure of the content of the initial recommendation of Dr Sam Jones, the Senior Investigation Officer who was assigned the Respondent’s case and who produced the notice referring the Respondent to the Tribunal. Dr Jones had previously indicated to the Respondent and her firm, by an email dated 12 July 2023, that she had made a recommendation on the outcome of the investigation, and intended to provide an update the following month “to bring this matter to a conclusion” [X1037]. An apparent intervention by senior management prevented the notification of any decision by Dr Jones until 8 February 2024, when she served a very wide-ranging notice of referral [X4-X32], most of the allegations in which have since been abandoned by the Applicant. 5. The Respondent has inferred that Dr Jones’ original recommendation was to close the investigation and has asked the Applicant to disclose it. The Applicant has refused disclosure and otherwise refused to confirm or deny the inference drawn by the Respondent. Accordingly, the Respondent seeks an order for disclosure.

    This looks like a collateral attack on the SRA – and it seems entirely irrelevant to the question of whether Carter-Ruck acted improperly.

    Carter-Ruck and Harlequin

    OneCoin wasn’t the first time Carter-Ruck had acted for fraudsters, and sent out libel threats that covered up an international Ponzi scheme.

    In the early 2010s, a company called Harlequin sold “below market” plots in the Caribbean to thousands of investors, with the help of endorsements from former sportsmen including Pat Cash and John Barnes.

    In 2011, accusations emerged on the “Singing Pig” internet property forum that Harlequin was a Ponzi fraud. Carter-Ruck brought a defamation action and the forum was shut down.

    But Harlequin was, in fact, a fraudulent Ponzi scheme. The company had sold far more development plots than it had land to build on, and investors’ 30% deposits were used to pay huge commissions to salesmen, or diverted to the Ames family, who owned the business. The company couldn’t explain where the deposits had gone, and investors ended up losing £398m.

    Out of the 9,000 plots sold, only 28 people received a property.

    Much of the £400m losses were covered by the Financial Services Compensation Scheme, because many of investors had been persuaded to use SIPPs to invest in the scheme.

    The man behind Harlequin, David Ames, was described by the High Court as a “Walter Mitty-type figure who, through an unhappy mixture of dishonesty, naivety and incompetence, has caused irreparable loss to thousands of people”.

    In 2022 he was jailed for 12 years for fraud.

    APJ Solicitors have written an excellent summary of Harlequin’s history. There’s also a great write-up from Citywire.

    Carter-Ruck missed at least one obvious warning sign. Harlequin was run by David Ames – but as a bankrupt he was banned from being a director. So supposedly his wife and son were the directors, with David Ames pulling the strings as the Chairman. Any lawyer should have seen that as a red flag: Ames was acting as a shadow director and breaking the law.

    But Carter-Ruck missed that, just as they missed all the OneCoin warning signs. And just as with OneCoin, Carter-Ruck have never shown any contrition.

    Until we published this article, the Carter-Ruck website still boasted about their success with Harlequin, back in 2011, successfully taking down a website that tried to tell the world that their client was a fraudster.

    What happens next?

    It is hard to believe that Carter-Ruck knew it was acting for fraudsters.

    But a competent firm in Carter-Ruck’s position should have known OneCoin was a fraud. Even acting for OneCoin was a serious professional breach; trying to silence OneCoin’s critics was even more serious than that.

    We don’t know enough about Carter-Ruck’s actions acting for Harlequin to say what it knew, or should have known. We hope to publish more on this soon.

    We won’t know the conclusion until the substantive SDT hearing in mid-June 2026 . For the moment, we have to hope that Carter-Ruck’s experience before the SDT makes it think more carefully before acting for people credibly accused of fraud.

    Many thanks to the Bureau of Investigative Journalism, The Foreign Policy Centre, The Free Speech Union, and Spotlight on Corruption.

    Thanks also to The Guardian and Reuters, who were instructing lawyers to challenge Carter-Ruck’s application for the anonymity order (before it was withdrawn).

    And thanks to Daniel Cloake for his reporting of the hearing.

    Footnotes

    1. The BBC article, podcast and Jamie Bartlett’s book are probably the best sources for the history of OneCoin. The Wikipedia article isn’t very good – it looks like a very old article that’s been occasionally updated. It badly misreads its sources, for example claiming that BBC reporters believe Ruja Ignatova is living in Frankfurt. ↩︎

    2. It’s important to differentiate two scenarios: a solicitor defending someone accused of fraud, and a solicitor assisting a fraud. The first is not just permitted, but essential for the justice system to function (although of course a solicitor must still act within the boundaries of his or her obligations to the rule of law and the court, and for example not mislead a court). The second is not permitted. A libel lawyer instructed to act for a client against accusations of fraud isn’t required to carry out an extensive investigation as to whether the accusations are true. But if the accusations are likely true on their face then it is in our view impermissible for the lawyer to threaten libel threats against people making the accusations. ↩︎

    3. We link to an archived version of the page; the link went dead at some point after 18 September 2025. ↩︎

  • Why Angela Rayner is likely to pay £8,000 in stamp duty penalties

    Why Angela Rayner is likely to pay £8,000 in stamp duty penalties

    We now have enough information to be able to answer the question of whether Angela Rayner will be subject to HMRC penalties, and how large those penalties will be. For the reasons below, in my view Ms Rayner will very likely receive penalties for a “careless” error of around 20%.

    The background

    On the basis of Angela Rayner’s statement on Wednesday, the report from Sir Laurie Magnus, and other publicly available sources, the background facts are as follows:

    • A court created a trust in 2020 to help support the needs of her disabled child. The child was the sole beneficiary of the trust.
    • At that time, Ms Rayner and her husband lived in a house in Ashton-under-Lyne, in Greater Manchester.
    • Ms Rayner and her husband divorced in 2023. Probably as part of the divorce settlement, some of their interest in the house was then transferred to the trust, “to ensure [her disabled son] continued to have stability in the family home”. The trust may have paid cash to Ms Rayner and her husband in return for the interest in the house, but that’s not clear.
    • The couple agreed a “nesting” arrangement in which they took turns living in the house, looking after their children.
    • In 2025, Ms Rayner sold the rest of her interest in the Ashton-under-Lyne house to the trust for £162,500 cash. That may or may not have been part of the divorce settlement, but probably had to be approved by a court given the trust’s involvement in the transaction.
    • Shortly after, Ms Rayner acquired a flat in Hove for £800,000.
    • Ms Rayner obtained two sets of advice, from her conveyancer and a trusts lawyer, that the standard rate of stamp duty applied to her Hove purchase, and not the higher rate for second homes. However both sets of advice stated that it was not expert tax advice. One made a suggestion that she should obtain specialist advice; the other made a recommendation.
    • Ms Rayner however did not obtain specialist tax advice, and therefore paid stamp duty at the standard rate.
    • Following recent press coverage, Ms Rayner instructed a leading tax counsel and received advice that “the application of complex deeming provisions which relate to my son’s trust gives rise to additional stamp duty liabilities”.
    • This means that Ms Rayner should have paid the higher rate of stamp duty, an additional £40,000.

    The law

    The relevant stamp duty land tax legislation is as follows:

    • Stamp duty land tax legislation is mostly contained in Finance Act 2003. The “higher rates for additional dwellings” (HRAD) rules are in Schedule 4ZA Finance Act 2003, which was created by Finance Act 2016.
    • The higher rate was introduced at 3% but (from October 2024) is an additional 5% on each band of stamp duty (including the 0% band).
    • The main rule, in paragraph 3 of Schedule 4ZA is that the higher rate applies if, at the end of the day you complete your purchase, you have a “major interest” in another dwelling worth £40k+, and you are not replacing your only or main residence.
    • The definition of a “major interest” is in section 117 Finance Act 2003, and broadly covers any ownership interest in land, but not where someone is merely a trustee.
    • There are rules for other cases in paragraphs 4 to 7 of Schedule 4ZA.
    • If one person holds as trustee then, where it’s a bare trust or life settlement, it’s the beneficiary who is treated as owning it.
    • But that creates an obvious avoidance opportunity. I could say I hold my family house on trust for my children, buy another property, and escape the higher rate charge.
    • There is a specific rule in paragraph 12 to counter this. If minor children (i.e. under 18) are beneficiaries of a trust over property then the parents are treated as owning the property.
    • That could create an unjust result if the trust was created as a result of a court order to protect a child with diminished capacity. So a specific exclusion (now in paragraph 12(1A)) was created in 2018 to prevent the higher rate stamp duty applying in this situation.
    • The exclusion applies where a trustee is acting under powers conferred by a court appointment under the Mental Capacity Act 2005.
    • The MCA 2005 allows a court to make an order appointing a “deputy” to make decisions on behalf of someone with diminished capacity. Often a deputy will hold property on that person’s behalf, as trustee.

    This is all accurately and succinctly summarised in HMRC guidance.

    How did the law apply?

    When Ms Rayner acquired the Hove flat, it was the only property she owned. She was registered at the land registry as one of the owners of the Ashton-under-Lyne house, but she was just a trustee, with no economic/beneficial interest. So on the face of it the higher rate did not apply.

    So the usual position would be that Ms Rayner’s purchase of the Hove flat would be taxed at the normal SDLT rate, meaning £27,500..

    However, Ms Rayner’s son was the beneficiary of a trust over the Ashton-under-Lyne house. That means that paragraph 12 deemed Ms Rayner to own the house.

    Why didn’t the exclusion in paragraph 12(1A) apply? At this point we don’t know. Possibly something to do with the terms of the court order/trust that we’re not aware of. Possibly because the trust was in favour of her other children as well. Sir Laurie Magnus’s report says:

    “I understand there are additional complexities, for example concerning the particular type of trust in question and the reason for which the trust was established. Taken together, it appears that – particularly in the context of the specialist type of trust in question – the interpretation of these rules is complex.“

    So we should probably assume this wasn’t a simple ignorance of the existence of paragraph 12, but something more subtle.

    Whatever the reason, the higher rate therefore applied, meaning £67,500. So an additional £40,000 was due.

    Will Ms Rayner face HMRC penalties?

    I expect that she will.

    The general rules for penalties are in Schedule 24 Finance Act 2007, and apply to most taxes, including stamp duty land tax.

    There is plenty of caselaw on HMRC penalties, but I’m not aware of any where a taxpayer was advised to obtain specific tax advice, but didn’t. The following is my view based on applying the legislation, the principles in decided caselaw, and my experience of HMRC’s approach in practice.

    There is no penalty for an innocent mistake, which was neither careless nor intentional (although the tax and interest remain due).

    Penalties will, however, apply under paragraph 1 of Schedule 24 if a stamp duty return contains an understatement of tax which was “careless”. Paragraph 3 says that an inaccuracy is “careless” if it is due to failure by a taxpayer to take reasonable care.

    The standard of “reasonable care” is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt. That means one takes account of the taxpayer’s particular abilities and circumstances.

    When you instruct an adviser, and provide them with complete facts, you are entitled to rely on their advice, even if it turns out your adviser was careless (unless the advice was manifestly unreasonable or you failed to provide the adviser with complete facts). So if (for example) Ms Rayner did not read HMRC guidance herself, that does not make her “careless”.

    I think it is reasonable for a layperson to trust a conveyancer’s advice on stamp duty (not least for the very practical reason that any other conclusion would cause grave difficulties in the property market), and a trust lawyer’s advice on tax involving trusts. However your ability to rely on your conveyancer ends if the conveyancer advises you to speak to a specialist. That is what happened here.

    My view is that a prudent and reasonable person in the position of Deputy Prime Minister would seek tax advice on a property transaction, particularly if they held legal title to another property, under a complex trust arrangement. My view is that, if the adviser told them they didn’t have expertise in the point, and suggested they receive specialist advice, a prudent and reasonable person would have obtained that advice.

    As the First Tier Tribunal said in the Lithgow case:

    “[R]eliance upon properly provided professional advice, absent reason to believe that it is wrong, unreliable or hedged about with substantial caveats, will usually lead to the conclusion that a taxpayer has not been negligent if he has taken and acted upon that advice.“

    Here there was a “substantial caveat”, and Ms Rayner did not act upon the advice to obtain specific tax input.

    It follows that in my view Ms Rayner was almost certainly “careless”.

    What is the level of penalties?

    The maximum penalty for “carelessness” is 30% of the lost tax.

    Carelessness penalties are reduced, potentially to zero, if a taxpayer approaches HMRC with the error – in tax parlance, they made an “unprompted” disclosure. But in Ms Rayner’s case, her correction is realistically “prompted” – she only obtained proper tax advice after a week of press scrutiny, and HMRC were already aware of the issue. That means that, under current HMRC practice, the level of penalties will usually be 15% to 30%.

    I expect that, with reasonable cooperation from her advisers, the final level of penalties would be around 20% – so about £8,000.

    Disclosure

    I’m a member of the Labour Party; I was a member of its senior disciplinary body (the National Constitutional Committee) but have stood down. I have no formal role in the Labour Party, and I advise policymakers in all parties. Generally that’s on “background”/unofficial: my one official role is that I’m a member of the SNP Scottish Government’s tax advisory group. I also participate in Government consultations, and speak to officials and occasionally politicians as part of those consultations (and have done so for many years, under previous Governments).

    Thanks to T for their help with the stamp duty analysis, O for MCA 2005 background, and J for an SDLT correction after publication. And thanks to S for adding additional colour on the penalties caselaw.

    Photo ©House of Commons, CC BY 3.0 licence.

    Footnotes

    1. Apologies to all tax advisers reading this, but I’m going to refer to stamp duty land tax as “stamp duty” throughout this article. ↩︎

    2. Usually it’s adults rather than children who are the subject of such orders, as children’s affairs are already managed by their parents, but it’s not uncommon for orders to be made for children when they turn 16, so everything is in place in good time for when they turn 18. ↩︎

    3. The applicable rates at the time meant the calculation was: 0% on the first £250k, and 5% on the rest. Assuming this was not a new lease, the ground rent does not affect the calculation. ↩︎

    4. Paragraph 12 is applied separately to each child. So a child beneficiary who is within the paragraph 12(1A) exclusion doesn’t cause their parents to be deemed the owner of the property. But other child beneficiaries of the same property, who aren’t in the exclusion, will cause their parents to be deemed the owner. This is a potential “gotcha” for parents who try to protect all of their children, instead of just focussing the trust on the one child who needs MCA 2005 protections. ↩︎

    5. The applicable rates at the time meant the calculation was: 5% on the first £250k, and 10% on the rest. ↩︎

    6. There is an excellent summary of almost all procedural tax legislation and caselaw at procedure.tax – an amazing free resource created by Michael Firth KC. ↩︎

    7. It’s is my view that neither is qualified to advise on non-straightforward SDLT questions, particularly those involving trusts, and I think most tax professionals would agree – but I don’t think it’s fair to assume that a prudent and reasonable layperson would share my view our on this. ↩︎

    8. Lithgow v HMRC TC2011/09646. See also Anderson [2016] UKFTT 335: “Nor would we expect such a taxpayer
      to obtain another professional opinion again unless there is reason to do so, of which the taxpayer ought to reasonably be aware, such as that any qualification put upon the advice by the firm may limit its reliability”. ↩︎

    9. I say “almost” certainly because Ms Rayner has at least two counter-arguments. The first is to say that I’m wrong, and it was reasonable to rely on the two advisers, despite their caveats. Perhaps she could say she was used to lawyers adding caveats and thought it was just pointless boilerplate. I don’t agree with that. Alternatively, in principle Ms Rayner could avoid penalties if she could show that, even if she had obtained expert tax advice, they would still have got the answer wrong. We don’t know what the underlying complexity is, but this feels like a very challenging argument to run in circumstances where no tax advice was obtained at all (as opposed to cases where advice was obtained, but the taxpayer provided incomplete information). And Sir Laurie’s letter says that “if such expert tax advice had been received, as it later was, it would likely have advised her that a higher rate of SDLT was payable”. I’m also conscious that we haven’t seen the advice in question, and we are reliant upon Sir Laurie’s summary of what it said – he’s a very eminent and intelligent man, but not a lawyer. ↩︎

    10. Paragraph 9(1E)(2) says a disclosure is unprompted “if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy”. Once the press coverage began, it was likely inevitable that HMRC would discover the inaccuracy in Ms Rayner’s SDLT return. Ms Rayner had a “reason to believe” HMRC were “about to discover” the inaccuracy. So this is an unusual type of “prompted”, but it is in my view still “prompted”. ↩︎

    11. If Ms Rayner’s advisers told HMRC immediately when the error was discovered then penalties could be reduced right down to 15% (for “telling“). Careless penalties can be suspended in some circumstances, but usually for taxes which are paid on an ongoing basis (e.g. VAT) and not typically for stamp duty land tax. ↩︎

  • An incompetent attempt to silence me by tax barrister Setu Kamal

    An incompetent attempt to silence me by tax barrister Setu Kamal

    Last Tuesday, I awoke to an email from the High Court, rejecting an attempt to silence me with an interim injunction. This came as a surprise, because I’d no idea anyone had applied for an injunction.

    This was an “on notice” injunction application – but I had received no notice. What kind of lawyer would do that?

    The “leading tax barrister in the country”

    The injunction application was brought by a tax barrister called Setu Kamal.

    Mr Kamal is unhappy with our report about him and Arka Wealth, the tax avoidance scheme promoter he worked with and helped promote. Mr Kamal claims our report costs him £1m every year in lost business. Back in May, Mr Kamal threatened to sue me unless I published my “sincere belief” that he is “the leading barrister in the field of taxation in the country”:

    In light of the reputational harm caused, which easily passes the threshold of “serious harm” under Lachaux v Independent Print Ltd [2019] UKSC 27, I require the following steps to be taken within 7 days: Publication of a clear and public confirmation of your sincere belief that I am the leading barrister in the field of taxation in the country, as previously stated, and a sincere apology for your misleading and disparaging remarks; Retraction or substantial amendment of the headline and body of the article so as to remove the defamatory implications it currently conveys; Publication in full of my letter to the Information Commissioner, together with acknowledgment of the outcome of the BSB investigation; Written confirmation that you shall apply higher editorial standards in the future, and that no further false or misleading references to any persons will be made in your publications; Undertaking to make the following payment: you shall undertake to pay 80% of any amounts which my regular or historic clients represent to you, in writing, as amounts they would have paid to me under an engagement with me, but did not do so because of your publications. Should you fail to take these steps, I will proceed without further notice to pursue all remedies available to me, including injunctive relief, damages, and costs. Yours sincerely, Setu Kamal

    I did not do as asked. Mr Kamal is not, in fact, the leading tax barrister in the country.

    Mr Kamal’s practice

    On 4 September 2025, HMRC named Mr Kamal as responsible for promoting and designing tax avoidance arrangements, saying he has created contract templates that are “essential to how these arrangements operate”.

    It’s HMRC’s view that these schemes do not work – I agree, and I believe most advisers do too.

    This is an unusual step by HMRC, and the first time a practising lawyer has been named as a tax avoidance scheme promoter.

    The “on notice” application, without notice

    On 13 August, Mr Kamal asked my solicitors if they’d accept service of a defamation claim; they said they would. Six days later, without telling us, he applied for an interim injunction (representing himself, without a lawyer).

    Here’s Mr Kamal’s application to the court:

    This was an “on notice” application. This means that, as is fairly obvious from the title, the other side has to be given notice of the application. The Civil Procedure Rules couldn’t be clearer, and even a simple Google search reveals the answer in seconds:

    After I received the court order, my solicitors wrote to Mr Kamal asking what he thought he was doing (at that point we hadn’t seen the application, and didn’t really know what was going on).

    Mr Kamal’s reply was that he simply had no idea that an “on notice” injunction required notice:

    I note your point concerning CPR 25.6. To clarify: when the Application was filed, it was my understanding that it was being made “on notice,” in the sense that it was not being sought ex parte or in secret. This was done in reliance of Stephens Scown LLP, who were engaged to assist with the filing. The Court’s recital that the Application was “on notice” reflects that understanding. For completeness, I should add that I had previously exchanged correspondence directly with Mr Neidle in relation to the publications complained of. It was on that basis that I understood the Application to be “on notice”: that the Respondents were aware of the substance of the allegations and the relief sought.

    This is word salad. A barrister shouldn’t be relying on a solicitor to understand a simple CPR point. But I’m going to take Mr Kamal at his word, and accept that this was not a malicious attempt to mislead the court and obtain an injunction on the sly, but merely incompetence.

    I asked Stephens Scown about this and received a slightly mysterious reply, which may (or may not) be a denial that they advised Mr Kamal that no notice was required:

    The defective application

    Incompetence is the most plausible explanation, because the entire injunction application was defective.

    You can’t apply for an interim injunction before issuing proceedings, unless the matter is urgent, or an interim injunction is “otherwise desirable in the interests of justice”. Mr Kamal doesn’t appear to be aware of this requirement, but it doomed his application. Our report was published in February, but Mr Kamal didn’t apply to the court until August – that hardly suggests urgency.

    That’s just the start of Mr Kamal’s problems. English courts have resisted interim injunctions that restrain freedom of speech ever since Bonnard v Perryman in 1891. Such an injunction will only be granted if it is clear that the statement is unarguably defamatory, and that no defence is possible. Again, Mr Kamal doesn’t seem to be aware of this.

    There are then other oddities. The extreme vagueness of his draft order – what, exactly, was I supposed to delete? The absence of the required undertaking by the applicant of an interim injunction to pay damages if so determined by the court. The general sloppiness, with the draft order giving me a deadline that expired a month before he applied for the injunction.

    For all these reasons, Mrs Justice Steyn rejected the application without a hearing, saying:

    Order of Steyn J refusing interim injunction sought by Setu Kamal, 22 Aug 2025

    Here’s the full judgment:

    I’m expecting to hear more from Mr Kamal soon.

    Many thanks to my solicitors at the Good Law Project.

    Footnotes

    1. Mr Kamal was a member of Old Square Tax Chambers until November 2024. He is now based in Cyprus and practices on his own. ↩︎

    2. Arka Wealth appears to have ceased business since our report. The related firm Benedictus Global may still be in business, although its website hasn’t been updated for a while – it still lists Mr Kamal as a member of Old Square. ↩︎

    3. I have omitted the witness statement, because I am probably prevented from publishing it at this point, under CPR 32.12. ↩︎

    4. As opposed to a “without notice” (or ex parte) application, which is reserved for cases of extreme urgency where alerting the respondent would defeat the purpose of the injunction (e.g., they might destroy evidence). An applicant in a “without notice” hearing is under a strict duty of “full and frank disclosure” to the court, meaning they must present all relevant facts, even those unhelpful to their case. ↩︎

    5. Bonnard v Perryman [1891] 2 Ch 269 is a cornerstone of free speech protection in English law, long pre-dating the ECHR and the Human Rights Act, This principle has been consistently upheld, for example in Greene v Associated Newspapers Ltd [2004] EWCA Civ 1462. Before Greene, there was some debate whether section 12 of the Human Rights Act limited Bonnard v Perryman.– Greene confirmed it did not. There remains, however, an ongoing effort by claimant libel lawyers to argue that the principle is contrary to the ECHR, on the basis that the right to freedom of expression in Article 10 should be balanced with the right to reputation included in Article 8. ↩︎

  • Herran Finance – another fake bank at Companies House

    Herran Finance – another fake bank at Companies House

    Every Monday morning, we publish an updated list of every PLC in the UK that has failed to file its accounts on time.

    Sometimes a company is on the list because of a Companies House delay/error. More often, it’s because the company is troubled, bust, or incompetent. And occasionally it reveals an active fraud.

    Despite the real progress made by Companies House, the UK company register remains stuffed full of fraudulent companies.

    Here’s a quick example showing how easy it is to find them.

    Herran Finance’s fake accounts

    Clicking through the list, there’s an interesting sounding company: Herran Finance PLC.

    One look at its accounts tells us it’s a fraud:

    We are supposed to believe that the company had £59,892,205 cash in 2020 and exactly the same in 2021. It made no interest or other return, and had no expenses of any kind, so filed as dormant. This is impossible. The accounts are faked.

    Knowingly filing false documents with Companies House is a criminal offence.

    The names listed as directors and shareholders of Herran Finance could be the actual fraudsters, but more likely they are fake names, or names of real people whose identities were stolen. One of those names, Adrian Croitoru, is listed as director of five other active companies which all also look fraudulent.

    Herran Finance’s fake website

    Herran Finance has a superficially plausible website at https://herran.co.uk/:

    There are no contact details, no privacy policy, no name of the legal entity, and none of the details one expects on a genuine bank website. Half the links are dead, returning straight back to the homepage. (Please be cautious; we recommend against visiting the website unless you are very confident in your browser security setup.)

    The website says Herran Finance is regulated and deposits are fully protected by the FDIC, the US deposit protection scheme. But there’s no Herran Finance authorised by the FCA in the UK or covered by the FDIC.

    And why does a bank incorporated in the UK, and with a .co.uk domain, provide US dollar accounts and say it’s regulated in the US?

    Because the website is a clone of the (real and legitimate) US bank BankProv. The sites look almost identical, and the HTML for Herran Finance shows that they just copied BankProv’s website using the HTTrack tool:

    What’s the scam? It could be anything: phishing, money laundering, investor fraud, advance fee fraud, or even immigration fraud. The company was incorporated back in 2019, but the domain was acquired in May 2025 – so the scam (whatever it is) may be ongoing.

    The policy failure

    It’s absurdly easy to incorporate a company with an enormous fake share capital and then file dormant accounts – but it shouldn’t be. And large numbers of such companies remain registered.

    Companies House should be using its new powers to stop this. It could create a simple automated filter for companies filing dormant accounts with an unchanging large cash balance in its accounts – there’s really no explanation for this other than fraud. The most recent accounts could then be automatically withdrawn, penalties automatically issued for the failure to file correct accounts, and an automated letter sent requiring evidence of the supposedly fully-paid share capital. If the penalties aren’t paid, or the evidence isn’t provided, the company can then be struck off.

    A more ambitious approach would be for Companies House to automatically flag and then manually review all incorporations and capital-raisings where shares are being issued for (say) over £10m (ignoring listed companies). These are a vanishingly small percentage of the total number of companies and filings.

    Measures of this kind would help stop fraudsters using Companies House to give fake companies financial credibility.

    Footnotes

    1. One director, Adrian Croitoru, gives a correspondence address which is a residential property in St. Neots, Cambridgeshire. His name is not on the deeds of that house; very possibly the fraudsters are using an innocent person’s details. ↩︎

    2. i.e. obtaining a work visa on the strength of employment with a company that doesn’t exist. ↩︎

  • Axiom Ince: a £64m failure; a £4,300 penalty for their accountants

    Axiom Ince: a £64m failure; a £4,300 penalty for their accountants

    Law firm Axiom Ince failed in October 2023, with £64m of client money missing – losses ultimately covered by the solicitors’ profession. How could the auditors have failed to notice £64m of missing money? The answer is that the company broke the law, and filed unaudited accounts.

    Axiom Ince’s accountants, Adrian C Mansbridge & Co, somehow failed to notice this, and signed off on unaudited accounts. The Institute of Chartered Accountants in England & Wales (ICAEW) described this as “professional incompetence” – and that incompetence will have delayed the moment of reckoning for Axiom Ince, and so increased its losses. The only consequence for Adrian C Mansbridge & Co has been a £4,300 disciplinary penalty.

    It’s a double failure of professional regulation. The SRA didn’t spot that a law firm they were already investigating had failed to file audited accounts. The ICAEW gave a “slap on the wrist” for behaviour that realistically merited a suspension or expulsion.

    Axiom Ince

    Axiom Ince grew rapidly from a series of acquisitions. When the Solicitors Regulation Authority intervened to shut it down, 1,400 people lost their jobs. However, it soon became apparent that this wasn’t a normal law firm failure – £64m of client money was missing. Five men have been charged by the Serious Fraud Office. The Legal Services Board published a report in May identifying a series of failures by the Solicitors Regulation Authority.

    The cost of refunding Axion Ince’s clients falls on the SRA Compensation Fund (which is funded by the solicitors’ profession, and compensates clients owed money by a regulated law firm).

    There is an excellent timeline of events in this article in Law Society Gazette.

    Adrian C Mansbridge & Co and the accounts

    Axiom Ince’s accountants were Adrian C Mansbridge & Co, a firm of chartered accountants and registered auditors, regulated by the ICAEW and ACCA. Adrian C Mansbridge himself is not an obscure figure – in 2018 he was chairman of the London Society of Chartered Accountants’ taxation committee.

    Here’s Axiom Ince’s last set of accounts, filed with Companies House on 7 February 2023:

    The company was at that point called Axiom DWFM Limited; it changed its name to Axiom Ince Ltd the following year

    Here’s the key part of the accountants’ report:

    It is your duty to ensure that Axiom DWFM Limited has kept adequate accounting records and to prepare statutory financial statements that give a true and fair view of the assets, liabilities, financial position and loss of Axiom DWFM Limited. You consider that Axiom DWFM Limited is exempt from the statutory audit requirement for the year. I have not been instructed to carry out an audit or a review of the financial statements of Axiom DWFM Limited. For this reason, I have not verified the accuracy or completeness of the accounting records or information and explanations you have given to me and I do not, therefore, express any opinion on the statutory financial statements.

    Small company audit exemption

    Small companies are exempt from audit. The rules at the time said that a company would be small if it satisfied two of these requirements:

    • Turnover not more than £10.2m
    • Balance sheet not more than £5.1m
    • Employees not more than 50.

    There is a one year grace period – so a company will only cease to be “small” after two successive years of failing to satisfy the requirements.

    Was Axiom Ince a small company?

    Axiom Ince’s 2022 accounts showed its total balance sheet assets for 2022 and 2021 :

    Axiom's balance sheet showing total assets of £5.4m in 2021 and £11.3m in 2022.

    £5.4m in 2021 and £11.3m in 2022 – so the balance sheet requirement was failed for two successive years.

    The accounts also stated the number of employees:

    The average number of persons employed by the company during the year amounted to 98 (2021: 63).

    The employee requirement was failed for two successive years.

    So the company wasn’t small and the accounts should have been audited. It is surely inconceivable Adrian C Mansbridge & Co was involved in any fraud, but we cannot understand how an experienced accountant could have made such a basic error.

    The mistake was very significant because, if an audit had been carried out for the 2022 accounts, it is plausible that the fraud would have been spotted, and the £64m losses to the SRA and the solicitors’ profession limited.

    A missed opportunity by the SRA

    The SRA were already investigating Axiom Ince in early 2023. That investigation included a forensic investigation of the firm’s accounts but it seems there was no check of the firm’s statutory accounts.

    The SRA therefore didn’t identify that the firm had failed to file audited accounts – a red flag that would have justified immediate action. Instead, Axiom Ince was permitted to remain in business until October 2023.

    The Legal Services Board’s report into Axiom Ince’s failure, written by Carson McDowell, is very critical of the SRA’s investigation, and in particular of the SRA’s insufficiently thorough checks of the firm’s accounts in early 2023. However the report does not mention the SRA’s failure to identify the lack of audited accounts. We infer that Carson McDowell missed this point.

    The consequence for Adrian C Mansbridge & Co

    At some point, the Institute of Chartered Accountants in England and Wales became aware of the error, and pursued disciplinary proceedings against Adrian Mansbridge & Co.

    The result:

    Conduct Committee Decision – 20 May 2025 With the agreement of Adrian C. Mansbridge & Company of Northwood, United Kingdom the Conduct Committee made an order that it be reprimanded, pay a financial penalty of £2,100 and pay costs of £2,200 with respect to the allegation that: 1. On 30 January 2023, Adrian C Mansbridge & Company prepared unaudited filleted financial statements for “X” Limited for the year ended 31 March 2022 which states that the company was entitled to exemption under section 477 of the Companies Act 2006 relating to small companies, when the company was not entitled to claim such exemptions. By failing to identify that “X” Limited were not entitled to such exemption, Adrian C Mansbridge & Company demonstrated professional incompetence by performing professional work incompetently to such an extent, as to fall significantly short of the standards reasonably expected of a member firm. Adrian C. Mansbridge & Company is therefore liable to disciplinary action as follows: Disciplinary Bye-law 5.1b for allegation 1 (effective from 14 October 2019 to 31 May 2023) 072902/MATT

    This outcome is surprising for two reasons:

    First, the company is not named (although we are confident it is Axiom Ince). The ICAEW’s usual policy is that third parties involved in disciplinary matters should not be named, for their own protection. In this case that makes no sense: Axiom Ince has ceased to exist, and the many affected stakeholders have a strong public interest in knowing what happened. No public interest was served in anonymising this case.

    Second, the penalty is extraordinary. The ICAEW finds that Adrian Mansbridge demonstrated “professional incompetence”. The result was that Axiom Ince continued to misapply client funds for another ten months. Yet the only consequence was a reprimand and penalty/costs of £4,300. That seems disproportionately lax. The ICAEW’s own sanctions guidance says that “audit work of a seriously defective nature” should trigger a £20,000 penalty. Failure to identify that an audit is required seems “seriously defective” to us. Indeed financial sanctions seem inadequate; suspension or expulsion seem more appropriate.

    We have to wonder if the ICAEW’s Conduct Committee was aware of the wider context around Axiom Ince, or just saw this as a technical breach with no material consequences.

    The response from the firms and regulators

    Adrian Mansbridge & Co did not reply to two requests for comment.

    The ICAEW said they couldn’t comment on a specific case, but that it’s their standard policy to anonymise the names of all third parties.

    We asked the SRA, the LSB and Carson McDowell if they were aware that Axiom Ince had unlawfully failed to file audited accounts; they each told us they were unable to comment.

    The consequences

    It may be that there is potential for the SRA Compensation Fund to recover some of its losses from Adrian Mansbridge & Co’s insurers (although we haven’t analysed the prospects for such a claim).

    The ICAEW should review its disciplinary processes. The way it’s applying its anonymity policy does not make sense, and there is something seriously wrong with the penalty applied in this case.

    And Companies House should have automated measures in place to detect companies which unlawfully fail to file audited accounts. We’ll be reporting more on this soon.

    Thanks to our researcher K, who found the ICAEW disciplinary decision.

    Footnotes

    1. Note that the firm appears to be a trading name of Adrian C Mansbridge himself. Whilst there is a company – Adrian C Mansbridge & Co, Ltd – it is dormant. ↩︎

    2. Not to be confused with the solicitor Adrian Mansbridge. ↩︎

    3. See paragraph 93 onwards of the Legal Services Board’s report, starting at the bottom of page 19. ↩︎

    4. We found the decision by searching against Adrian Mansbridge’s name. The accountant’s report date and balance sheet date match Axiom Ince. The ICAEW would not comment on specifics but did not deny that the reprimand refers to Axiom Ince. Adrian Mansbridge did not reply to our request for comment. ↩︎

    5. The SRA has already taken action against the former owner of Axiom Ince to recover some of its cost, but as far as we are aware no action has been taken against Adrian Mansbridge & Co. ↩︎

  • Council tax on expensive homes: could the Budget raise £1bn+?

    Council tax on expensive homes: could the Budget raise £1bn+?

    The Government needs money. Council tax is regressive – high-value properties pay a trifling sum in comparison with their value. It must be tempting for Rachel Reeves to solve both problems in one go by raising council tax on high-value properties.

    We’ve created an interactive calculator that shows how this could be done, and how much could be raised.

    How council tax could be raised

    Council tax only slightly varies with the value of properties:

    This is because of the way council tax is charged in bands, by reference to 1991 valuations. The middle band, D, is properties worth between £68,001 and £88,000 (in 1991 money). The top band, H, is properties worth more than £320,000 in 1991 (about £1.5m today). By law, band H properties are charged only twice as much council tax as band D properties. The IFS has described all this as “out of date and arbitrary” and said council tax is “ripe for reform”.

    So an obvious fix is to split band H into four bands, H1, H2, H3 and H4, with H1 retaining the 2x multiplier that band H currently has, and the others having higher multipliers.

    Or something more radical: a proportional property tax could be charged on properties in bands H2, H3 and H4, as a percentage of property value (but only on the value in those bands, so no “cliff-edges”).

    How much could be raised?

    The calculator below lets you experiment with either new multipliers or a percentage tax for high value properties. It shows how much revenue the change would raise across England, and the average council tax bills it would generate.

    We split band H in four, and the slider at the top lets you position each of the new bands. Then you can choose between a “multiplier” tax and a “percentage tax” – and the revenue consequence is displayed at the bottom. You can also see the average bill someone in each band will pay (on mobile you have to click the “info” icon for that).

    You’ll see that adding a few more bands doesn’t raise much money. For example, a new 3x band at £2m, 4x band at £4m, and 6x band at £8m only raises £270m. Owners of £8m+ properties pay an additional £9,000 of tax each year.

    Creating a new percentage tax on top of existing council tax, on the other hand, raises more significant amounts. A flat 0.5% annual tax on all property value above £2m raises about £1bn, with owners of £8m+ properties paying an average of £90,000 more tax each year.

    Or make it progressive: 0.5% from £2m to £4m, 0.7% from £4m to £8m and 1.1% for £8m+, and we raise about £1.5bn. Owners of £8m+ properties now pay £120,000 more tax each year.

    These figures are just for England; if applied across the whole of the UK, expect overall revenues to be 5-10% higher. And the various approximations and assumptions in our approach mean the real-world revenues would likely be somewhat higher (see the methodology section below).

    The obvious conclusion: there is potential for the Government to raise a useful amount of additional tax by taxing high value properties, but the amounts are limited.

    Does extending council tax make sense?

    The obvious reason to do this is that Government needs to raise tax. Raising it from people who can likely afford it, on property which is currently under-taxed, makes some sense.

    There is also an equally obvious moral case for making annual tax on property more progressive. A £100m property in Mayfair currently pays less tax than a terraced house in Bolton. A fairer tax on property feels the right thing to do.

    There’s a relatively small economic benefit: an annual tax creates an incentive to use/develop property that may currently be very under-used or even derelict.

    There are, however, also some obvious problems:

    • A percentage property tax would require somewhat regular valuations. Valuing the c4,500 properties over £10m is relatively straightforward. Valuing all the c80,000 properties over £2m is more difficult, and would require considerable resource (and take time to create). The council tax banding system was designed to avoid such difficulties.
    • There will be some people in very valuable properties who don’t have enough income to comfortably afford the new tax – “asset rich, cash poor”. This is often overplayed: someone owning a £3m house usually has numerous ways to raise funds. However any new tax could include a deferral option (e.g., paying the tax as a lien on the property upon sale or death). These kinds of mechanisms are common in other countries with annual property taxes.
    • The biggest problem: the tax will be capitalised into property values. The day after the tax is announced, the value of e.g. a £10m property facing (say) an annual £50k bill will fall – in principle by somewhere around £600,000. So someone buying the property a week later isn’t really paying the new tax – it’s paid by the person owning the property at the point of announcement (because they’re getting a lower purchase price). In the real world things tend to be not quite so tidy, but there is nevertheless an unfairness that most of the economic burden will fall on current owners – it’s like a one-off property wealth tax. There is no way to solve this problem – land tax proponents often regard it as a form of rough justice. Others may be less sanguine.
    • So we can expect some people will sell to escape the tax; but that will be mostly a one-off effect, as new buyers economically are much less exposed.
    • Unlike a proper land value tax, a percentage property tax somewhat disincentivises improving properties. Once you’re into the range of (say) a 0.5% property tax, then every £100k you spend improving the property triggers an additional £500 of property tax each year – in principle reducing the value of the property by about £6,000. So you’re paying £100k but receiving a net benefit of £94,000.
    • Some would add another disadvantage: if (as would be wise) a percentage tax is charged on the landowner, landlords would simply pass on any additional tax to tenants. That’s widely believed, but mostly not correct: rents are primarily determined by location value and demand, not by the landlord’s costs. More tricky would be an increase in council tax multipliers; the bill would go to tenants. In the medium term rents should adjust so that most of the cost is borne by landlords, but in the short term it would be a tax on tenants in high value properties.

    If we look at all taxation of wealth and property, the UK has higher tax as a percentage of GDP than any other OECD country:

    The reason is simple: council tax (it’s most of that grey bar – a “recurrent tax on immovable property”). And that’s council tax paid by most people, not council tax paid by the very wealthy. We under-tax high value property ownership compared to most of the world, at the same time as we overtax purchases.

    My view is that there is a strong case for adding more multiplier-based council tax bands. I’m less convinced that a percentage tax makes sense given the administrative/valuation issues and the horizontal equity problem.

    The balance changes once we’re looking at wholesale reform: replacing all of council tax, business rates and stamp duty with land value tax. The boost that such a reform would give to growth and homebuilding in my view more than counters the downsides. But bolting on a miniature version of such a tax as a pure revenue-raiser looks less attractive.

    Methodology

    The calculator works as follows:

    • First, it estimates the number of properties in a given band. We weren’t able to find any reliable data on the number of high-value properties in the UK, so we estimate this using three data sources:
      • The council tax data shows 154,000 properties in Band H, which (on average) means they’re worth about £1.5m today. We use £1.5m as our starting point for the new bands, and 154,000 as the “true” figure for the population of £1.5m+ properties.
      • HMRC stamp duty statistics give us figures for the number of residential property transactions in six bands above £1.5m – the highest is £10m+. We use this to estimate the number of properties in England between any two values, interpolating for values below £10m and using a Pareto distribution above that. We then cap the top-end estimate, fixing the most valuable residential property in the UK at £210m (the reported value of the UK’s most expensive property).
      • Some property is held in UK or foreign companies or trusts. It isn’t normally sold, and so doesn’t appear in stamp duty returns. But such properties have to pay an annual tax, ATED, and data on such “enveloped” properties is published by HMRC, in bands up to £20m. We use this data to estimate the number of properties; again interpolating when within the published bands, and using a Pareto distribution beyond that. We add the output of this estimate to the stamp duty estimate (it increases the result by 5-10%).
    • When in “multiplier” mode, we apply council tax discounts (e.g. single person) and premiums (e.g. second homes) using the current data for band H. We don’t discount/premium when in the percentage mode.

    This is all very approximate:

    • Our assumption that annual stamp duty statistics are representative of the housing stock is clearly wrong. A flow is not always representative of a stock. Some very large estates are rarely if ever sold (think “old money”). We will therefore likely be under-counting very valuable properties, and therefore potential revenue, but we weren’t able to quantify this effect.
    • There will be some double-counting (likely limited) between the ATED and stamp duty datasets, e.g. where a property paid ATED in 2023/24 and was sold that same year.
    • Our analysis is for England only, but 1% of the ATED properties are in Scotland – this creates a small over-statement of our estimate. We didn’t just deduct 1% from the ATED estimates, because we expect that the Scottish properties are lower in value, and that would therefore potentially add more error than it removes.
    • We apply band H data for discounts and premiums across all four of our new bands H1 to H4. It is plausible that the most valuable properties are less likely to qualify for discounts (e.g. single owners) and more likely to have premiums (e.g. second homes). Again this suggests we may be under-counting revenue.
    • We assume that all properties have risen in value to 495% of their 1991 valuations. This likely over-values properties outside London and under-values property in London. It may therefore mean we significantly under-estimate values, and therefore potential revenue, at the top end. A more sophisticated analysis could account for this to some extent.
    • We apply tax to the bands at the band averages; slice integration would have been more accurate – but only very marginally changed the results, and that didn’t justify the added complexity.

    The code is available on our GitHub here.

    Photo by Jakub Żerdzicki on Unsplash

    Thanks to C for help with the modelling.

    Footnotes

    1. i.e. that’s the NPV of the stream of payments, assuming an 8% discount rate and ignoring inflation/house price rises. ↩︎

    2. This is from the Wealth Tax Commission report – the data is a little old but it’s unlikely the overall picture has changed. ↩︎

  • Will Labour tax your house sale? Why CGT on homes makes no sense

    Will Labour tax your house sale? Why CGT on homes makes no sense

    Reports suggest Labour may introduce capital gains tax on home sales in the Autumn Budget. It sounds like an easy revenue raiser – but the evidence shows it would slash transactions, gum up housing chains, and could even collect less tax overall. With stamp duty already doing huge damage, the last thing we should do is add yet another tax on moving house. Particularly when there are better alternatives.

    The current mess – stamp duty

    Stamp duty land tax (SDLT) is a deeply hated tax.

    (There are slightly different taxes in Scotland and Wales. The rates are generally higher, so we should expect all of the below to apply to Scotland and Wales, but more so)

    If you tax something, you get less of it. Stamp duty taxes property transactions, and so we shouldn’t be surprised that stamp duty reduces property transactions.

    It is, however, surprising quite how large this effect – “elasticity” – is. Office for Budgetary Responsibility figures shows that every 1% increase in the effective rate of stamp duty cuts transactions by about:

    • 7% for properties under £250k.
    • 4.5% for properties between £250k and £1m.
    • 6% for properties over £1m.

    These are not theoretical figures: they’re measured from a big change in 2014, when the previous “slab” system of stamp duty created big changes in the effective rate of the tax at different price points. The observed effects were twice as big as anticipated.

    We can use these figures to estimate the effect of abolishing stamp duty (which is another way of saying: the adverse effect that stamp duty currently has).

    • A £200k property pays £1,500 SDLT. That’s only 0.75% of the purchase price – so abolishing stamp duty would increase transactions in such properties by 5.25%
    • A £291k property (the average England house price) pays £4,550 SDLT. That’s 1.6% of the purchase price – so abolishing stamp duty would increase transactions by 7.2%
    • A £440k property (an average detached house in England) pays £12,000 SDLT. That’s 2.7% of purchase price. So abolishing stamp duty would increase transactions by 12%.
    • A £2m property pays £153,750 stamp duty. That’s 7.7% of purchase price. Abolishing stamp duty would increase transactions in such properties by 46%.

    These four examples shouldn’t be regarded as existing in separate universes. The £2m market may feel a world away from the £440k market – but it’s in reality one market, and some house purchase “chains” will include both £2m and £440k houses. If someone at the top of a chain doesn’t sell, nobody else in the chain can complete. So a 46% increase in £2m transactions will facilitate additional £440k transactions, beyond the 12% figure that the £440k calculation above suggests.

    Given there were 663,645 residential property sales in England in 2022/23, we are talking about a very large number of transactions being deterred by stamp duty – somewhere over 70,000 each year. Each of these deterred transactions has a cost, in reduced labour mobility, inefficient use of land, and reduced economic growth. We also shouldn’t forget the human cost: being unable to move house makes people miserable. A recent paper finds that the welfare loss of taxes like stamp duty exceeds the revenue they raise.

    And the rates are now so high that the top rates raise very little; HMRC believes that increasing the top rate any further would actually result in less tax revenue.

    The effects aren’t limited to homeowners. Because SDLT depresses transactions, it reduces the rate at which developers at which developers can sell, therefore delaying their recycling of capital into new housing supply, and tightening the pipeline of new homes.

    So there is a powerful case for abolishing stamp duty.

    There are, however, two problems.

    The obvious problem is that it raises too large a sum to simply be abolished. Any increase in transaction volumes would itself generate tax revenues from other sources (e.g. VAT on estate agent fees) but these effects are much smaller than the cost of the abolishing stamp duty.

    The deeper problem is that abolishing stamp duty would raise prices. Evidence suggests about 40% of any tax cut would be pushed straight into prices.

    CGT – making things worse

    The Times and Financial Times suggest the Government is considering imposing capital gains tax at 24% (higher rate taxpayers) or 18% (basic rate) on sales of people’s homes.

    It’s obvious why this is attractive to politicians looking for tax revenue – the capital gains tax exemption for main residences is the single largest tax relief, costing £31bn.

    However abolishing the relief would be as damaging as stamp duty – perhaps more so.

    Imagine someone who bought an average detached house in 2010 for £250k. It’s now worth £440k. They want to move to another house of about the same value – perhaps to take up a job elsewhere, perhaps to join their family. Today there’s stamp duty of £12k – and that’s already a problem. But if CGT applied there would be a gain of £190k and capital gains tax of about £45k. For most people that would be unaffordable. The OBR stamp duty figures imply that transaction volumes would fall by over 45% – and this kind of “lock-in” has been observed in other countries.

    So no developed country in the world does this.

    Most countries – e.g. France, Germany, Australia, Denmark, Ireland, have a simple exemption, like the UK. Others – e.g. Switzerland, Sweden, let you defer the gain if you’re buying a new residence (so the gain is taxed only if/when you sell a residence without buying a replacement).

    The US exempts the first $250k of gain ($500k for married couples). Deferral is available for investment properties, and so a common strategy for owners of high value properties is to “convert” their home into an investment property in advance of a sale.

    What if we only impose CGT on high value properties?

    It might seem politically tempting to adopt some variant of the US approach, so that high value properties are taxed, and others remain exempt. The Times has reported that the Treasury is considering capital gains on sales of over £1.5m.

    Introducing a “cliff edge” at which gains start to be taxed would be unfair and highly distortive. And taxing historic gains feels like retrospective taxation (but if the government didn’t do that, and only taxed future gains, revenues would be very small). However, even if we leave these significant points aside, the mathematics of such a tax are challenging.

    Take an example where a £2m house is sold at a £750k gain.

    Today there is £153,750 of stamp duty (paid by the purchaser) and (in most cases) no capital gains tax for the seller. But imagine that the £750k becomes a taxable gain for the seller:

    • The seller would face a £180k CGT liability.
    • That’s great – lots of new tax raised!
    • But the tax will deter some people from selling. We can conservatively use the OBR SDLT data to quantify this effect. £180k is 9% of the purchase price, and so the OBR figures suggest that would result in a 54% drop in transactions (more in the short term).
    • So, for each transaction before the CGT change, we’re now seeing 0.46 transactions, generating total tax of £153,525 (i.e. 0.46 x (£153,750 + £180,000)).

    So we haven’t raised £180k of new tax at all – we’re taking in £225 less tax.

    This is just an illustrative example: if the gain had been smaller then some net tax would have been raised, but the high elasticity and much higher stamp duty means the net tax is always much smaller than one would expect.

    For example, if instead of a £750k gain, there was a £10k gain, there would be £2,400 of CGT – but the resultant small (but significant) decline in transactions means the net revenue is about half that figure.

    And of course if the gain had been larger then there would be a larger loss of net tax revenue. If, instead of a £750k gain, there was a £1m gain, there would be £240,000 of CGT – but a 72% fall in transactions meaning a net revenue loss of £43,500.

    It’s counter-intuitive, but the property owners with the largest gain, where one would expect the most tax to be raised, actually cause revenue losses.

    There will be second order tax revenue effects (lost VAT on fees for the transaction that is no longer happening) or the wider effects to the property market and economy. As discussed above, some house purchase “chains” will include both £2m and £440k houses. Chains propagate “shocks” across the market; if £2m transactions fall by more than 50%, we should expect the rest of the housing market to be affected.

    All of this will be exacerbated by the fact that CGT is wiped-out at death – so people sitting on large gains have a powerful incentive to never sell (their estate will pay IHT either way), further gumming-up the housing market. It will be exacerbated further if people believe that a future government would change the law – why sell now, if CGT might disappear in two years’ time?

    The fundamental point is that, given the high elasticity, adding more tax on property transactions is well past the point of diminishing returns.

    The Treasury know all this. We’re not going to see CGT on our homes.

    So what’s the answer?

    We could replace stamp duty and council tax with a modern land value tax (LVT) – an annual tax on the undeveloped value of land. Because it’s not a tax on transactions, it doesn’t deter transactions. It would prevent the abolition of stamp duty triggering a rise in prices. It encourages developers to build/sell as quickly as possible. It also has significant economic benefits, which are recognised by economists across the political spectrum: how many other ideas are backed by James Mirrlees, the Institute of Economic Affairs, the Adam Smith Institute, the Institute for Fiscal Studies, the New Economics Foundation, the Resolution Foundation, the Fabian Society, the Centre for Economic Policy Research, and the chief economics correspondent at the FT?

    However LVT faces some serious challenges:

    • Like any significant tax reform there would be winners (people who expect to move house) and losers (people who don’t). That could make it a hard political sell. The politics may be easier if the reform as a whole was revenue-neutral – but current fiscal pressures mean there is little political appetite for revenue-neutral tax reform.
    • There would need to be transitional rules – otherwise people who’d recently paid a large stamp duty bill would feel they were being taxed twice. We could, for example, credit recent stamp duty bills against future land value tax payments.
    • The balance between local and national taxation would need to be entirely redrawn.
    • And the whole regime would probably need to be phased in, to avoid price shocks.

    There have therefore been few attempts to propose a detailed and viable LVT implementation for the UK.

    There was, however, a recent very detailed proposal published by by economist Tim Leunig for centre-right think tank Onward. This wasn’t an LVT, but what Mr Leunig calls a “proportional property tax”. It’s a serious and well-thought-out proposal which would (broadly speaking) replace council tax with (on average) a 0.44% annual tax on property value below £500,000, and replace stamp duty with a national levy of 0.54% on property values between £500,000 and £1m, and 0.81% on any value above £1m.

    There would, once more, be winners and losers. Mr Leunig is commendably up-front about this, showing the percentage of “winners” in each council tax band:

    I fear that telling three-quarters of average households that their annual property tax is going to increase will be a hard political sell. The pain would be eased by making the £500k+ national levy only apply to houses purchased after the tax comes into force – but that has the obvious potential to stall the market in £500k+ houses (and, to be fair, the Onward report acknowledges this issue).

    Whilst I applaud the detail and rigour of Mr Leunig’s report, I am doubtful it could be implemented in its current form – but elements of it are well worth detailed consideration. So when The Guardian says that Treasury officials are “drawing on the findings” of the Leunig proposal, that’s promising news.

    Photo by Richard Horne on Unsplash

    Footnotes

    1. Apologies to all tax professionals, but I’m going to call SDLT “stamp duty” throughout this article. ↩︎

    2. These are the long run transaction semi-elasticities in the OBR paper. ↩︎

    3. This and the other figures in this article use the standard SDLT rates and ignore all the many potential complications. In particular, I’m ignoring the 2% non-resident premium, the special <£300k rate for first time buyers, and the 5% higher rate for second/subsequent properties. All these factors would tend to increase the effects I discuss. ↩︎

    4. We can illustrate this with a back-of-the-napkin calculation. Abolishing stamp duty would result in around 70,000 additional house sales. Estate agent fees on these would be around £300m (70,000 x 1.5% x £285k), with VAT of £60m. There will of course be other effects, but we’re more than two orders of magnitude too small to overcome the cost of abolition. ↩︎

    5. The precise figure depends on their tax band, but most of the sale will be taxed at the higher rate regardless. ↩︎

    6. In practice the impact would likely be worse. Elasticities are often not linear: a large, sudden and well-publicised increase in a tax often has a much greater effect than a simple elasticity calculation would suggest. ↩︎

    7. The way this works is that, in the above example, there would be no capital gains tax on the purchase of the £440k house, but the new house would “inherit” the old purchase price of £250k. So if the new house was sold for £440k, and not replaced with another residence, the deferred CGT of £45k would be charged. ↩︎

    8. Conservative because SDLT has two effects: it makes buyers pay less (price elasticity) and deters purchases (transaction elasticity). CGT will only have a transaction effect, so we’d expect the transaction elasticity to be higher than for SDLT. ↩︎

    9. i.e. 9% x -6.0 ↩︎

    10. Stamp duty still £153,750, CGT is 0.12% of purchase price, so there’s a 0.72% decline in transactions. 0.72% of £153,750 is £1,107. ↩︎

    11. Because £240,000 is 12% of £2m, so there’s a 72% fall in transactions, and 72% of £153,750 is £110,700. ↩︎

    12. Although this will be a significantly smaller effect than stamp duty. Stamp duty defers all transactions. CGT only deters sales at a high gain. ↩︎

    13. That wouldn’t be the case if the tax rate was low, say 5-10%. A small amount of tax could then be raised without adverse effects – but query if raising small amounts in this way is a worthwhile endeavour. ↩︎

  • A fair solution to inheritance tax on farms and small businesses

    A fair solution to inheritance tax on farms and small businesses

    There has been a huge amount of controversy over the inheritance tax changes in last year’s Budget. They raised £500m, but hit some small farms and small businesses unfairly – whilst not stopping much existing inheritance tax avoidance. There’s a new proposal from CenTax which seems to do the impossible: protect small farms and businesses, counter tax avoidance more effectively, and double the yield to £1bn.

    CenTax are proposing a “minimum share rule”. Where a farm/business forms at least 60% of an estate, there would be full relief from inheritance tax up to £5m per person (so £10m for a married couple). For £5m-10m per person there would be 50% relief. After £10m, no relief.

    I’m convinced this proposal would be fairer for small farms and businesses, tougher on avoidance and raise more tax.

    Inheritance tax – the background

    If someone dies then their estate pays inheritance tax (IHT) at 40% on all their assets over the £325k “nil rate band” (NRB). A married couple automatically share their nil rate bands, so only marital assets over £650k are taxed.

    Transfers to spouses are usually completely exempt from inheritance tax. So, for a married couple, in most cases there’s only inheritance tax when the second spouse dies.

    The Cameron government introduced an unnecessarily complicated additional “residence nil rate band” (RNRB) where the main residence is passed to children. This is £175k per person, and again automatically shared between married couples. So for most married couples, only marital assets over £1m are taxed. The RNRB starts to be withdrawn (“tapers”) for assets over £2m (with planning, a married couple can keep the RNRB with joint assets of over £2m).

    Before the Budget

    Before the Autumn 2024 Budget, private businesses and farms were often completely exempt from inheritance tax (IHT).

    Agricultural property relief (APR) removed the IHT charge on the agricultural value of farmland, farm buildings and usually most of the farmhouse.

    Business relief (BR) removed the IHT charge on businesses – including farm businesses and farm assets such as machinery and livestock.

    In practice, qualifying APR/BR assets were entirely exempt with no cash cap. This protected small farms and small businesses. However it went further than that:

    • The exemptions had no limit. What made sense for a policy perspective for a small farm or family business doesn’t really make sense for a £7bn business – but the exemption covered it just the same.
    • The exemption doesn’t apply to shares in listed/quoted companies, for the very good reason that you can easily fund the tax by selling the shares in the market. But shares in alternative markets like AIM aren’t considered “quoted” for this purpose, even though you can easily fund the tax in precisely the same way. So there’s a large market in AIM portfolios designed solely to save inheritance tax. This has no public benefit – it reduces tax take, distorts investment, and artificially inflates AIM valuations (hence reducing yield).

    The Budget 2024 changes

    The Budget put a combined cap of £1m per person on agricultural property relief and business relief. Up to that cap, there was still a complete exemption from inheritance tax (except for AIM shares).

    Above the cap, relief was cut to 50%  –  so the marginal IHT rate on qualifying farm/business assets beyond the cap became 20%, not 40%.

    That sits on top of the standard IHT thresholds: the £325k nil-rate band (NRB), the £175k residence nil-rate band where a home passes to direct descendants, and the usual spouse exemption.

    The Budget changes apply from April 2026 and raise raises £500m per year by 2029/30 (more in earlier years).

    Why most farms and small businesses wouldn’t be taxed…

    The upshot for farmers and owners of small businesses:

    • For a single farmer who has no material assets other than his or her farm and farmhouse, and plans to leave everything to their children, the new APR/BR cap plus the nil rate band plus the residence nil rate band comes to a maximum of £2m.
    • For a married couple who plan to leave everything to each other and then their children, the new cap plus nil rate band plus residence nil rate band comes to a maximum of £4m with some basic planning.

    For farms/businesses larger than this, the answer in principle is to gift property above the £2-4m limit. Provided they live for seven years, the gift will be entirely outside inheritance tax and, if the owner/farmer is still relatively young (say no older than 70) it will be relatively inexpensive to insure against the risk they died early.

    … and why some farms and small businesses would

    In practice that £4m figure may not be achieved. Some farmers are unmarried; some married farmers’ spouses aren’t involved in the business.

    And the “gifting plus insurance” strategy doesn’t work for everyone.

    • An owner/farmer may be elderly, and not expected to live for seven years (so gifting won’t work and insurance is unavailable or expensive). This is why the Office for Budgetary Responsibility costings show the IHT changes yielding the most revenue in the first few years, from the “too old to gift” cohort. After that point, gifting/planning is expected to reduce revenues.
    • Many small farmers have no material income or assets other than their farm, and expect their “retirement” to be funded through farming income. So it won’t be always be easy for them to make a significant gift to their children (and a gift has to be real to count as a gift for IHT purposes).

    All of this means that the consequence of the Budget changes are more nuanced than most media coverage (on both sides) suggests:

    • Only a few hundred small farm estates will end up paying significant amounts of inheritance tax. The CenTax report has more data and details on this.
    • Other farms will spend time/money putting planning in place so they don’t pay significant amounts of tax.
    • This will be a source of worry and stress for many people, even if their estates don’t end up paying tax.

    Why should we care about someone with £5m of assets?

    An obvious response to the above is: everyone else pays inheritance tax. Why should farms and small businesses be any different, particularly if they own assets worth millions of pounds?

    It’s helpful to compare the position of someone inheriting £5m of cash/securities and someone inheriting a £5m farm or small business.

    If I was lucky enough to inherit £5m of cash or securities, I’d receive £3m after inheritance tax. I could invest that in a fund tracking worldwide equities and expect to be able to maintain the value of the £3m (after inflation) whilst taking out around £120,000 each year. Or someone with a higher risk tolerance might even keep the £5m portfolio, and borrow £2m secured on the portfolio – I might expect the long term return on the portfolio (7%) to exceed the cost of the borrowing (5%).

    This doesn’t seem a particularly harsh outcome. After all, I’d have paid at least 40% tax (or more) if I earned £5m – it’s not clear why there should be less tax when I’m getting the money for nothing. And most people could live very comfortably for the rest of their lives on £120,000 of passive income.

    Now let’s look at what happens if I inherit a £5m farm or small business, and ignore the house and other assets for now. If my parents put simple planning in place, £2m will be fully covered by APR/BR, and the rest benefit from 50% APR/BR. Meaning the tax bill is £600,000 – 20% of £3m.

    I probably can’t sell £600,000 worth of the farm/business to pay this. It’s hard to sell part of a small business, and farms cease to be viable below a certain size.

    Nor can I easily fund the tax by borrowing. HMRC lets me pay the inheritance tax over ten years and interest free – i.e. £60,000 per year. That means I need the business to generate a 1.2% return to cover the cost of the tax.

    Many small businesses would be able to do this – but many small farms will not. The profit from farming often represents a very small percentage of the value of the land. I’ve spoken to farmers who own land worth £5m whose net income is around £50,000. That seems economically contradictory, even impossible, but it’s nevertheless the case.

    The result would be that the heirs would be forced to sell the farm to pay the tax. The farm as a unit would be unviable. That is undesirable – not just for the family directly affected, but for the local community.

    The problems with the Budget changes

    This illustrates an obvious problem with the Budget changes: in a small but significant number of cases, small farms bear a cost they cannot afford, and will end up being broken up.

    There’s a second problem: the changes don’t remove the tax avoidance opportunities of BR/APR. I can acquire (for example) woodland purely to avoid inheritance tax, and it’s still completely effective for the first £1m, and worthwhile (50% relief, so an effective 20% inheritance tax rate) for the rest.

    The question is how we fix this.

    Our proposal: clawback

    Last year we spoke extensively to farmers and farm tax advisers, and proposed a solution – “clawback“.

    We suggested keeping full APR/BR for genuine farm succession but clawing it back if heirs sell the farm within a long, tapering period. That would make farmland useless as a bolt‑on IHT shelter: if your children cash out, the tax is reinstated.

    Since we were only seeking to protect small farms, we suggested there should be a £20m ceiling on the exemption.

    This had two effects:

    • Someone inheriting a small farm and continuing to farm it (or lease it to a tenant farmer) would continue to benefit from a complete inheritance tax exemption
    • Someone inheriting farmland/woodland acquired for inheritance tax planning purposes would likely want or need to sell it (given the low yield); but they then wouldn’t benefit from the inheritance tax exemption.

    The proposal therefore was tougher on tax avoidance than the Budget proposal, whilst also protecting small farms.

    Clawback was widely supported by farmers and the National Farmers’ Union. However it has failed to achieve any traction with Government. I believe the main reason is that there is simply no data that lets HMRC or HM Treasury model the revenue impact of clawback. There may also have been a concern that it wasn’t possible to design and implement clawback by April 2026.

    It therefore doesn’t look like there is any realistic possibility of clawback being implemented.

    A better proposal: CenTax’s “minimum share rule”

    CenTax have published a paper proposing a minimum share rule (MSR).

    The idea is that, to get agricultural property relief or business relief , a minimum share of the estate must be made up of qualifying farm/business assets. If farming/business is what you do, you hold more than the minimum share, and get relief up to a generous allowance. If you’re a wealthy household that bought some farmland/woodland to save inheritance tax, you don’t.

    CenTax present various possible scenarios, but the one I think is most workable is as follows:

    • A minimum share set at 60%. All the small farmers I’ve spoken to would easily clear this hurdle – their farmland, business and farmhouse amount to around 90% of their overall assets. Most small businesses would too.
    • If the value of the farm/business is at or over the minimum share, APR/BR provide a complete exemption up to a £5m combined APR/BR allowance. This is per-person, so a married couple should benefit from a combined £10m allowance. The allowance should transfer between spouses, in the same way as the nil rate band and residence nil rate bands currently do. Above the £5m per-person allowance, there would be 50% APR/BR relief, i.e. a 20% effective inheritance tax rate.
    • If the value of the farm/business is below the minimum share, APR/BR is not available, so the full 40% IHT rate applies.
    • There would then be a £10m (per person) upper limit to any APR/BR relief. After that, inheritance tax would apply at the usual 40% rate.

    I believe this is a better solution than clawback.

    It protects small farms just as effectively than clawback (but without the complexity of worrying that subsequent unplanned sales of land/assets could trigger a large IHT charge).

    It counters artificial use of APR/BR for avoidance purposes more effectively than clawback, because it’s not reliant on a subsequent event the timing of which would be uncertain. And it does this much more effectively than the Government’s proposal, because tax planners no longer get a £1m exemption to play with.

    It should be possible to implement by April 2026, although some of the detail (and anti-avoidance) would need careful thought.

    Most importantly from HM Treasury’s perspective, existing IHT data can be used to estimate the revenue impact. Here’s CenTax’s figures:

    Adjustment to the planned reform Level of combined allowance (100% relief) £1.5 million £2 million £3 million £5 million Minimum share Low (20%) +120% +114% +105% +94% Central (30%) +93% +88% +80% +71% High (40%) +66% +62% +55% +47% Upper limit Low (20%) +22% +13% 0% -14% Central (30%) +7% -1% -12% -24% High (40%) -7% -14% -24% -35% Both Low (20%) +152% +146% +137% +126% Central (30%) +121% +116% +108% +99% High (40%) +90% +86% +79% +71%

    My favoured scenario is in the bottom right – the central estimate is that this doubles the revenue from the Government’s IHT reform. So instead of raising £500m by 2029/30, it raises £1bn.

    I won’t try to reproduce CenTax’s full technical design here – their paper isn’t short – but the policy principle is a simple one: relief should reflect how far the estate is genuinely a farm business or small business. That’s hard to game, easy to administer off the existing data model, and it avoids pushing viable farms into “sell land to pay the tax” decisions that the Budget proposal inevitably creates.

    I think it’s a very good idea – I hope Government and representatives of farmers and small businesses give it careful consideration.

    Thanks to the farmers, advisers and policy folk who commented on a draft of this note. Any errors are mine.

    Footnotes

    1. The “estate” here has a different meaning from the way the word is often used, e.g. “landed estate”. The “estate” is the legal fiction that springs up when someone dies – the executors manage the estate, and inheritance tax is charged on (usually) the estate. ↩︎

    2. The estate pays as a legal matter, but realistically the burden of inheritance tax falls on the heirs – they’d (obviously) receive more if there was less/no IHT. ↩︎

    3. In principle the RNRB could be retained in full with joint assets up to £4m, but in practice changes in asset values between deaths make this very unlikely. ↩︎

    4. This is because of the order in which reliefs apply. The first £1m is completely relieved by APR/BR. The remaining £1m benefits from 50% relief, leaving £500k. That £500k is covered by the NRB/RNRB. ↩︎

    5. That works as follows. The first of the couple to die leaves £1m of farm/business assets to their children, completely relieved by APR/BR – so no IHT, and the rest to the surviving spouse. The second to die leaves £3m to their children. £1m of that is completely relieved by APR/BR. The remaining £2m has 50% relief, leaving £1m. That £1m is covered by both spouses’ combined NRB/RNRB. But the residence nil rate band tapers, so in practice the full £4m will not be available in all cases. ↩︎

    6. See table 1.3 here. ↩︎

    7. CenTax concludes that, amongst farm estates worth less than £2.5 million, only 15 estates per year would face an increase larger than 5%. All of the 25 farm estates per year facing an increase larger than 15pp are valued at over £7.5 million. See Figure 12 on page 50. ↩︎

    8. Let’s assume a simple 40% flat rate here; perhaps I inherit a house as well, some/all of which is covered by the nil rate band and residence nil rate band. ↩︎

    9. That is of course not an investment recommendation, but in a “I take no liability” sense I strongly recommend investing in an index-tracker ETF. ↩︎

    10. Although there is a tax gotcha here – the return on the portfolio is taxable but the cost of the borrowing is usually not deductible. So a 7% return after tax will be very similar to the 5% cost of the borrowing ↩︎

    11. Why? Some mixture of: farmland prices reflect development potential, even if the chances of planning permission are very low; farmland prices reflect demand from people owning large houses who’d like to acquire the neighbouring fields; and – not least – they also reflect demand from people looking to avoid inheritance tax. ↩︎

    12. Clawback isn’t a foreign concept: there are examples elsewhere in UK tax (e.g. SDLT relief withdrawals, CGT holdover relief, and VAT partial exemption adjustments) and in Ireland’s agricultural relief rules. ↩︎

    13. The fact their house doesn’t qualify for relief means that their business assets typically form a smaller percentage of their overall assets. ↩︎

    14. This would be a “cliff edge”, with 0% relief switching straight to 100% relief at the 60% point. Cliff edges are usually undesirable features of a tax system, but the reasons explained in the CenTax report, it’s probably the best way for the minimum share rule to apply. ↩︎

  • Why I’m torn on increasing gambling duties

    Why I’m torn on increasing gambling duties

    The Institute for Public Policy Research (IPPR) has proposed large increases in gambling taxes to raise £3bn. The £3bn would be used to remove the two-child benefit limit and the household benefit, “lifting around half a million children out of poverty overnight”.

    However there’s a gap between how the proposal is being pitched – taxing gambling companies on their large profits – and the reality. According to the IPPR itself it would be gamblers, not gambling companies, paying the price.

    There’s also a gap in the IPPR’s calculations. This is a very large proposed tax increase – with the largest tax, remote gaming duty, rising 138%. But the IPPR’s calculation is “static” – it simply multiplies current gambling profits by the new rates. The IPPR justifies this with illustrative calculations showing gambling companies worsening their odds to maintain their profits. But there’s a point beyond which gambling companies can’t do that, and the IPPR’s proposal may go well past this point.

    If the IPPR are wrong, and the tax can’t be passed on, then the revenues raised would be much less than £3bn – potentially half.

    This is always the problem with “sin taxes”. We can use them to raise revenue. We can use them to deter the “sin”. But we need to be clear what we’re trying to achieve. And we need to be honest and admit that most of the tax is realistically paid by the sinners, not the companies selling the sin.

    The proposal

    The UK has a confusing array of different taxes on gambling. The IPPR paper proposes large increases in the most important ones:

    • Remote gaming duty increased from 21% to 50%. This applies to online gaming supplied to UK customers, wherever in the world the supplier is, and is expected to raise about £1.1bn this year.
    • Machine gaming duty increased from 20% to 50%. MGD applies to e.g. fruit machines, quiz machines, and fixed odd betting terminals. The tax raises about £600m this year.
    • General betting duty increased from 15% to 25%. This applies to sports betting and most other gambling (except horse racing, which already pays an additional 10% levy). The tax raises around £700m.

    The £2.4bn raised by these taxes would increase to about £5.6bn. This would probably be the rare case of a popular tax increase – Portland Communications found that, if they asked the public which taxes should be increased, gambling taxes topped the table.

    In many cases we’d expect so large an increase in tax to reduce the gambling companies profits and, as these taxes apply to profits, result in only a small increase in revenue – or even a decrease in revenues (a “Laffer curve” effect). However, previous increases in gambling taxation have not had this effect: the rate of remote gaming duty went up by 40% from April 2019, and the result was a 33% increase in revenue.

    That suggests there is potential to raise gambling taxes and raise revenue – but the IPPR’s increase is much larger – up to 138% for remote gaming duty. It therefore can’t just be assumed that history is a guide to what will happen. So it’s disappointing that the £3bn estimate is “static” – it doesn’t take account of “Laffer” effects. Instead, the IPPR justify the figure through an illustrative calculation.

    The IPPR’s illustrative calculation, and what it means

    The IPPR’s report says:

    “It is only fair, therefore, that these companies, which are exempt from any form
    of VAT and often based overseas, contribute more to help wider social aims
    where they can – and the industry is booming.    “

    I think the reader would assume from this that it’s the gambling companies who end up paying the tax. That is, however, not necessarily the case. It’s usually thought that gambling companies respond to increases in gambling taxes by passing the cost on to gamblers, in the form of worse odds. Or, as an economist would say, the “legal incidence” of gambling taxes is on gambling companies – they pay the tax to HMRC, but the “economic incidence” of gambling taxes largely falls on gamblers.

    The IPPR report relies on this, because it means profits aren’t hit, and so “Laffer” effects are limited:

    While behavioural effects should be considered, we agree with the assessment of the Social Market Foundation that previous HMRC commissioned analysis from 2014, which examined the behavioural effects of levy rises, should not be considered as definitive as their conclusions are based on assumptions rather than their own data analysis. Furthermore, we expect that firms will seek to protect their bottom lines by worsening odds. Even if the 2014 analysis is correct and this leads to a smaller market overall, higher margins for firms are likely to lead to higher surplus and strong possibility of higher government revenue through gambling duties than set out in this paper. It is worth noting that gambling markets continue to work well under tax regimes with much higher tax rates than our own.

    This approach is justified by an illustrative example which shows how the incidence falling on gamblers means that tax revenues increase, even when the rate rises significantly:

    TABLE A1 Illustrative modelling of the relative effects of worsening odds and reduction in gambling volumes A: Initial situation B: Firm makes no adjustments to odds following increase in duty rate C: Firm shortens odds to maintain profits Stakes reduce using elasticity of –0.5 Gambling duty rate 20% 50% 50% Win-rate offered to customers 85% 85% 61.6% ‘Price’ of gambling 15% 15% 38.4% Gross revenue (stakes) £1,000,000 £1,000,000 (no change as odds have not changed) £625,000 (adjusted down using price-elasticity of demand of –0.5) Gross gambling yield £150,000 £150,000 £240,000 Gambling duty revenue £30,000 £75,000 £120,000 Firm’s post-gambling duty surplus £120,000 £75,000 £120,000

    The first column is how things are now.

    The second column is where the gambling company simply absorbs the increased gaming duty (with its post-tax profit dropping by about 40%).

    The third column is what the IPPR thinks will happen: the gambling company protects its margin by worsening odds. Its revenue reduces by 40% but its profit remains the same. The increase in duty has, in economic terms, been entirely paid by gamblers.

    This is a simplistic illustrative calculation. I doubt gambling companies would be able to pass all the cost of increased duties to gamblers (particularly for online gaming, where the odds across different platforms serving different countries are very visible).

    We should, however, expect a good part of the burden of the tax will economically be borne by gamblers. Whether that is an acceptable outcome is a political question. Personally I find it troubling because, as the IPPR report says:

    It is also becoming increasingly apparent that, while many people do gamble, the vast majority of profits derived by gambling firms come from a small number of prolific gamblers. A recent UK study found that the top 10 per cent of online gambling accounts by amount staked account for nearly 80 per cent of operator revenue (NatCen 2022). Previous work from the House of Lords gambling industry select committee found that 60 per cent of the industry’s profits came from just the 5 per cent of customers who were either problem gamblers or at risk (HoL 2020).

    And there is evidence from a Finnish study that the incidence of gambling tax may be particularly focussed on lower income gamblers.

    What happens if the IPPR are wrong?

    The figure in the IPPR’s illustrative table is based upon a “price elasticity of demand” of -0.5. In other words, that a 10% increase in the “price” of gambling (the odds) will result in a 5% decrease in the gambling revenue. This is a large effect, but IPPR’s illustrative figures show that gambling companies can (in principle) still protect their margins by worsening odds, and so making a greater percentage profit from that reduced revenue.

    However there is a point where this stops working.

    As the price elasticity rises beyond -0.5, gambling firms have to make the odds worse and worse to keep their margins. But there’s a limit – eventually the odds become impossible.

    Here’s what happens if we add a column D to the IPPR’s table, with elasticity of -0.75:

    Parameter A: initial situation B: firm makes no adjustments C: firm shortens odds to maintain profits. Elasticity -0.5 D: firm shortens odds to maintain profits. Elasticity -0.75 Gambling‑duty rate d 20% 50% 50% 50% Win‑rate to customers (RTP) 85% 85% 62% 2% Price of gambling p = 1RTP 15% 15% 38% 98% Gross revenue (stakes) Q £1,000,000 £1,000,000 £625,000 £244,141 Gross gambling yield GGY = p × Q £150,000 £150,000 £240,000 £240,000 Gambling‑duty revenue d × GGY £30,000 £75,000 £120,000 £120,000 Firm surplus after duty (1d) × GGY £120,000 £75,000 £120,000 £120,000

    At that point, margins can only be maintained if customers’ win-rate drops from 85% (as at present) to 2%. It’s unlikely anyone would gamble in such a scenario. And beyond -0.75, it becomes impossible to maintain margins with this strategy.

    Gambling companies could, in principle, take the opposite approach, and maintain their margins by greatly increasing sales. It’s unclear if that’s possible, but I expect most people would consider it an undesirable outcome.

    So the IPPR’s simple “illustrative” approach only makes sense if its estimate of a -0.5 elasticity is roughly correct. Beyond that point, their simple assumption that profits can remain broadly static fails, and a more complex analysis is required.

    The calculation above is absolutely not a proper analysis – it merely identifies an important limitation of the IPPR’s illustrative calculation. There are numerous real-world factors which complicate matters, and the real-world limit of the IPPR’s approach will not be -0.75 – a detailed analysis would be required to determine where it lies.

    Is -0.5 the correct figure?

    HMRC published a report by Frontier Economics in 2014 showing high elasticities, particularly for remote gaming duty: up to -1.8.

    Earlier this year, the Social Market Foundation published a proposal to increase gambling taxes (more modestly than the IPPR’s proposal). The SMF were critical of the figures in the HMRC report, saying that much of it rests upon questionable assumptions rather than empirical evidence. The IPPR say they agree with the SMF.

    The HMRC and SMF documents are both serious and considered pieces of work, and I and our team have not assessed the merits of the two positions.

    But the point is of critical importance to the IPPR paper. if the HMRC/Frontier figures were correct then, applying the -1.8 (rather than -0.5) elasticity to IPPR’s numbers cuts the extra remote gaming duty revenue by about two-thirds. Because RGD is the single biggest component of the £3bn package, that alone would mean the whole yield would fall to about £1.5bn – half the expected £3bn.

    Given the dependence on the -0.5 figure, it is therefore unfortunate that the IPPR present only one scenario. It would be preferable to admit the uncertainty and discuss the range of possible outcomes.

    Conclusion

    We need to be careful about trying to raise additional revenue from “sin” taxes. The revenue may be less than we expect, and what revenue we do receive may (in economic terms) come from customers rather than the businesses making the sale.

    Personally I see compelling arguments for reducing the harms caused by gambling; but I’m unconvinced tax is a good tool for doing that. Regulation may be a better approach.

    A tax increase may still be worth doing as a revenue-raiser. But any argument for an increase needs a more robust revenue estimate than the IPPR’s use of a static calculation and illustrative tables. And it needs to acknowledge who is actually paying the price.

    Footnotes

    1. The spreadsheet is available here. ↩︎

    2. The win rate/price of gambling is assumed; it of course varies for different forms of gambling. Firms could cut costs, alter marketing spend, shift product mix, or accept lower margins temporarily. For online gambling in particular, cross-border supply could constrain odds-worsening even before we hit the -0.75 threshold, because consumers could use VPNs etc to use foreign untaxed platforms. And, critically, elasticity is not constant – elasticities from smaller price changes don’t necessarily apply to very large price changes. ↩︎

    Thanks to H for a discussion on elasticities and help with the modelling.