Gerald
Grosvenor, the Duke of Westminster, was one of the richest men in Britain,
worth an estimated £9bn. He was so wealthy mainly due to the happy fact that
one of his ancestors acquired most of Mayfair and Belgravia 300 years ago.
When Gerald died last year, the Duke’s 26-year-old son, Hugh,
inherited the family title. So how much inheritance tax was payable on that
£9bn fortune as it passed down to the next lucky Grosvenor generation? Given
the current rules state that the inheritance tax rate on an estate worth more
than £325,000 is 40 per cent, you might be thinking of a number well in to the
billions. But think again. Go lower. Much lower.
In fact, go all the way down to zero. Why? It would appear
that, in the eyes of the tax authorities, Hugh didn’t
inherit a penny of that £9bn, so no inheritance tax was due.
This is because the Grosvenor family assets are legally owned
by a series of “trusts”. The only thing that changed when Gerald died was that
Hugh became the primary beneficiary of those trusts, receiving regular cash
pay-outs at times decided upon by the trustees.
Of course, this is a fiction. The effective owner of the
assets is not the trust but the beneficiary. This is something the society
magazines know well enough. Tatler claimed
last year that Hugh was the owner of “half of London”. The young man was listed
as the ninth wealthiest person in Britain by the 2017 Sunday
Times Rich List. It seems unlikely we will read a correction in those
publications any time soon. And that’s because Hugh really is, as Vanity Fair,
puts it “absurdly rich”.
In amongst the detail of the “Paradise Papers” last week were
a number of offshore trusts. Most notable among them was a $450m trust
established by the major Tory donor Michael Ashcroft in which he himself is apparently
himself one of the beneficiaries.
When the former Conservative candidate for London mayor Zac
Goldsmith was induced to publish his tax
returns last year, we discovered he is the fortunate beneficiary of an
offshore trust set up by his father Sir James Goldsmith. Zac received around
£5m in income from the trust between 2010 and 2015, dwarfing his MP’s salary.
To most people that would look like an inheritance from Sir James, who died in
1997. But not, alas, to the taxman.
It’s no secret that the UK’s inheritance tax is not fit for
purpose. The super-rich can bypass it with their trusts. But gaping loopholes,
such as the ability to pass on gifts to other family members so long as one
does not die within seven
years, have rendered it more or less optional for the accountant-advised
upper middle classes too. At the other end of the wealth spectrum, the
obsession from politicians of all stripes with raising the threshold at which
it becomes payable (so that it’s now almost £1m) have hollowed it out as a
revenue raiser.
Inheritance tax brought
in £4.9bn in 2016-17. That’s up on the £3.6bn raised from the levy in
2016-17. But the Office for National Statistics estimates
that between 2007 and 2014 the aggregate net worth of the household sector
soared from £7.2 trillion to £9.4 trillion. Wealth is absurdly under-taxed in
Britain.
Independent taxation experts like the Institute for Fiscal Studies recommend
that politicians replace the irredeemably leaky inheritance tax with a new
lifetime gifts tax. It’s a very good idea, but it would not deal with the issue
of the effective transfer of wealth held in family trusts.
The Tax Justice Network is calling
for a public registry of all onshore and offshore trusts, with
beneficiaries named. While this would certainly bring valuable transparency to
a region of damaging opacity, it would not, in itself, solve the under-taxation
problem.
We know well enough that this form of tax dodging by the
super-rich is going on, the question is how to stop it. If we’re serious about
reducing the massive inequalities of wealth in our society we need to sweep
away the fiction of “ownerless” aristocratic family wealth. We have trust
issues to deal with.
This article originally appeared in The Independent on 12/11/17
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