National Irish Bank Gets Into Hot Water Over 'Tax-Free' Investment Polices

Mandy Robinson, Tax-news.com, London

11 January 2001

The National Irish Bank (NIB) is offering compensation to customers who have been landed with unexpected tax bills after purchasing offshore investment policies.

The customers, 470 in number, claim that when they purchased the products they were led to believe they were tax-free investment vehicles when for example, offshore bonds sold through the bank were actually subject to capital gains. The products were mostly from Clerical Medical International (Isle of Man), Scottish Provident International (Isle of Man) and Old Mutual (Guernsey).

The majority of the bonds, involving 230 customers, were bought from Clerical Medical International in the mid-1990s and account for £51 million of the total £62 million invested in offshore bonds sold through NIB. The nature of the compensation involves the NIB paying a proportion of the customers' tax liabilities on the condition that they agree not to sue the bank, thus avoiding the likelihood of years of litigation in the courts.

The problem came to light in 1998 when the Irish Revenue performed an investigation and began to raise CGT assessments. Investors complained about the resulting tax bills. Settlements so far have approximated £50,000 per customer and the total involved is likely to exceed £20 million.

The NIB has said it is informing customers this week of the offer of compensation but insists it will not make any admission of liability and will only pay the amount of tax that relates to the CGT and not any extra bills incurred.

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