Rachel Reeves is facing calls to crack down on the super-rich using offshore pension schemes to avoid multimillion pound inheritance and capital gains tax bills, following a Guardian investigation.
On Thursday, undercover filming revealed how ultra-wealthy individuals are being advised how to use a loophole in pensions investments to shelter their wealth from Labour’s clampdown on large-scale tax dodging.
The promoter of one scheme told an undercover reporter that the government would not legislate to close the schemes down as ministers have “bigger fish to fry”.
He said a client had placed £30m into a pension scheme to protect it from inheritance taxes, implying almost £12m of taxes saved by the client’s children.
The revelation came as the new chancellor is expected to reveal a £20bn hole in government spending for essential public services on Monday, in a move anticipated to pave the way for tax rises in the autumn during Reeves’ first budget.
Experts expect Reeves will be forced to announce tax rises, with options including capital gains or inheritance taxes and slashing other tax reliefs. The chancellor has previously ruled out changes to income tax, VAT, national insurance and corporation tax – the largest revenue raisers.
A spokesperson for the Treasury said the government would use the budget to provide an update on its plan to close the tax gap and added that it was “fully committed to cracking down on those who fail to pay their fair share”.
Responding to the Guardian’s investigation, Dan Neidle, the founder of the campaign group Tax Policy Associates, said: “These offshore pension funds … are being widely used as tax avoidance vehicles. I expect the rules will change in the budget”.
The Guardian’s filming suggests that multimillionaire UK residents are being pitched a little-known offshore product called a qualifying non-UK pension scheme (QNUPS), which is said to legally protect their fortunes from inheritance tax (IHT) and capital gains tax (CGT).
Pension schemes have long been exempt from IHT and CGT in the UK. However, QNUPS, which are sold by a range of different companies that typically focus their sales pitches on the tax savings, have added advantages to wealthy investors. Those benefits include “no limit on the size of your contribution”, as well as the schemes allowing individuals to invest “a much broader range of asset classes than traditional pensions [including] property, stocks, shares and art/antiques”, according to one promoter of QNUPS.
Labour has promised to renew the focus on tax avoidance by “the wealthy” to “ensure everyone pays their fair share” as it grapples with what it says are threadbare public finances and growing demands to settle long-running disputes over public sector pay and benefits.
Arun Advani, an associate professor at the University of Warwick, who co-authored a 2023 Institute for Fiscal Studies paper called Reforming Inheritance Tax, said: “The tax relief against inheritance tax, on top of already not paying national insurance contributions and capital gains tax, has always been difficult to justify. It means pensions are increasingly used as saving for one’s children, rather than saving for old age. The use of these foreign schemes means there is even more revenue that would be available from removing this tax break than previously estimated.”
Claire Aston, the director of the campaign group TaxWatch, called on the new government to “take action to remove blanket exemptions for UK CGT and IHT for QNUPS which have been shown to benefit the ultra-wealthy in a way parliament surely never intended”.
A spokesperson for Baker Tilly Isle of Man, the firm filmed in the Guardian’s investigation, said its promotion of QNUPS products “is at all times administered in accordance with the required laws and regulations in place in the UK”.
