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What is the problem with offshore investments?

Another day, another major leak of sensitive data that reveals even the British Queen has her fingers in some offshore-pies. But with everything legal and above board, are we at risk of sensationalising something that is pretty average?

UK ‘shatters’ tax secrecy of offshore territories


It is likely the news the UK sovereign has invested her private wealth in offshore funds will light a fresh fire under the “us versus them” argument and Labour leader Jeremy Corbyn has already demanded the government do more to shut down offshore investments in a speech to the Confederation of British Industry (CBI).

One fears that despite the Duchy of Lancaster paying tax on the investments made on the Queen’s behalf, that fact will fall under the radar during a rash of commentary and Twitter reaction.

That offshore funds are a way of managing money in a tax efficient way, just as an Isa is tax efficient, and that planning to draw from your pension without sacrificing large swathes to the taxman, will likely be overlooked too.

Getting muddled

Ben Yearsley, director of Shore Financial Planning, says everyone is getting too worked up about the issue: “Why is there anything wrong with managing your affairs to be as tax efficient as possible? As long as you are paying what you should in the country you are in then what’s the problem?”

“The Paradise Papers will provide the tinder for more aggressive discourse about the rich and powerful.

“Where does it end if you go down the road of saying tax avoidance anywhere is wrong?”

The revelations that many of US president Donald Trump’s inner circle have made investments with clear links to the Kremlin is another matter entirely, but does it matter if U2 frontman Bono has bought a stake in a Lithuanian mall?

Even if it’s an odd place to invest, who is to say he shouldn’t if, as Yearsley says, he is paying all the tax he is meant to as per local law?

There is a risk of going too far with this, and for criminal tax evasion to become muddled with tax avoidance.

Implausible deniability

There is also the case to say that the only people with the money to take advantage of these offshore funds are, by and the large, the super wealthy already who could arguably afford to pay more.

In the case of Lord Ashcroft, who promised to pay what he owed and failed to deliver, the political consequences will be clear.

One thing that is evident, simply saying you “didn’t know” what a fund was invested in is perhaps not a good enough reason to invest in companies with dodgy ethical or social history, as was the case with the Duchy of Lancaster’s investment in retailer Brighthouse, branded an irresponsible lender by the FCA.

Invesco Perpetual’s Paul Causer, co-head of fixed interest, says he doubted the Queen’s advisers would not know the fund held Brighthouse given the amount of information given to investors.

Yearsley does not see why investors should be expected to know how they feel about each and every holding in a fund.

“If you have a portfolio of 25 funds, they might have 85 holdings each, you can’t possibly check to see if every one is fine. That’s not the fault of the end investor, or even of the wealth manager.”

The Paradise Papers, so called because of the glamorous locations of the offshore investments, will provide the tinder for more aggressive discourse about the rich and powerful.

Ultimately, for many people tax avoidance will have been a part of their life at some level and one point, or will be in the future.

Be careful if you wish for a harder crackdown, it might just come true.

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