Labour Peer’s Offshore Dealings Embarrass UK Government

by Robert Lee, Tax-News.com, London

17 May 2005

In something of an embarrassing revelation for a Labour government determined to snuff out aggressive tax planning strategies, it emerged from reports at the weekend that the newly-appointed armed forces minister, Lord Drayson, had as recently as March held many millions of pounds in offshore trusts in order to avoid UK taxes.

According to reports in the UK media, Drayson formed several offshore companies and trusts in the Isle of Man to accommodate some £30 million earned from the sale of Powderject, the pharmaceutical firm that he co-founded in 1997. Tax experts have estimated that he would have saved around £3 million in UK tax by deploying this strategy.

The Sunday Times has revealed that Drayson set up two offshore trusts, known as Ventana and Amalfi, in 1997 shortly before floating Powderject on the stock market. Each of the Douglas registered trusts contained 2.825 million shares in the company. Drayson then formed two offshore firms, Vardale and Sherdley, which were owned by two trusts.

Drayson was ennobled by Prime Minister Tony Blair last year, and has since donated more that £1 million to the Labour Party. He was given a post in the Ministry of Defence in Blair's post-election ministerial reshuffle.

A spokesman for the Labour peer has confirmed that some of his and his families' financial assets were held offshore when Drayson was an active businessman. However, the spokesman went on to stress that since entering public life, Drayson "took steps to ensure the trusts came onshore and would be taxed accordingly."

“This move was completed last autumn. As a minister he abides by the ministerial code," the spokesman added.

Nonetheless, the affair is likely to open the Labour government to accusations of double standards, especially given recent legislation designed to prevent Britons from minimising their UK tax bills by sending money offshore - introduced one week after Drayson wound down his offshore firms - in addition to a new disclosure regime designed to block aggressive tax planning schemes and new rules preventing homeowners from mitigating the effects of inheritance tax.

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