MILLIONAIRE executives have dodged up to £700 million in tax each year thanks to a loophole which has given some a lower overall tax rate than many nurses and teachers.
The loophole has allowed executives at private-equity firms to reduce their tax bill from 40 to 40% to as low as just 28% because their profits are being treated as personal investments- meaning they’re taxed at the capital gains rate of just 28%.
Other millionaire executives have even managed to reduce their tax to as low as 10% by taking advantage of a tax break designed to help entrepreneurs which gives them a lower overall tax rate than many nurses and teachers.
The investigation, published by the campaign group 38 Degrees, has resulted in 23,000 Scottish members join their campaign to bring an end to the practice.
revealed 16 private-equity bosses belong to the Conservative Party’s elite Leaders Group of major donors who have given more than £7m to the Tories since 2008.
Tax campaigners said the arrangement between the HM Revenue and Customs and the British Venture Capital Association (BVCA) has amounted to “Government-sponsored tax avoidance on a breathtaking scale”.
The research, funded by donations from over 5,900 38 Degrees members, uses figures on fund managers’ income surveys to estimate that the loophole costs the exchequer up to £700m in lost tax each year.
The loophole, known as the “Mayfair tax loophole” after the famous London district where many private-equity firms are based, excuses the executives from paying higher-rate income tax on the often huge profits made by their investment funds.
Campaigners for 38 Degrees in Scotland are calling on Chancellor George Osborne to announce the closure of the Mayfair loophole in his March Budget. The government’s 2015 Finance Bill currently protects the Mayfair loophole for private equity managers, despite containing other anti-avoidance measures.
38 Degrees executive director David Babbs said: “This Mayfair tax loophole is government-sponsored tax avoidance on a breathtaking scale.
“Money which should be funding the NHS is going to millionaire fund managers instead. The rest of us pay in our fair share to keep the country going: why should millionaire financiers be treated differently?
“In his last Budget before the election, George Osborne wants to convince the country that he’s on the side of hardworking families on average incomes. If he wants us to take him seriously, he’s got to close the Mayfair tax loophole.”