Wealthy businessman fighting trusts tax bill of £4.5m in courts

SIR FRASER Morrison, one of Scotland’s wealthiest men who made his fortune selling the family business to Anglian Water, is at the centre of a dispute that he is liable for nearly £4.5 million after using a tax avoidance scheme that used Irish trusts to sell shares.

He is fighting the decision of an Upper Tribunal appeal in which judges ruled he should be paying the tax from the sale of £14.5m of Anglian shares through specially founded Irish trusts after being transferred by three Scottish trusts founded by Sir Fraser.

It has emerged two tribunals have so far supported the taxman’s view that capital gains tax was owed in the UK over what was seen as a pre-planned sale to investment bank Merrill Lynch which became a “single composite transaction” for tax purposes.

Sir Fraser argues there is no UK liability as no decision was made in advance to sell shares through the Irish trusts.

Permission for Sir Fraser to appeal to the Court of Appeal has been granted and is expected to be listed later this year.

The entrepreneur, who made his fortune from the sale of his Highland-based family owned construction company, set up three Scottish trusts for the benefit of himself, his wife Lady Patricia Morrison and three adult children, Peter, Claire and Sarah Jane.

Sir Fraser, who lives in Fife, and his brother Gordon, who four years ago together were once thought to be worth £85m, sold Morrison Construction, the main contractor in building the Falkirk Wheel, to Anglian in 2000 for £263m.

Sir Fraser received Anglian shares and loan notes worth £33.4m in exchange for his 8,668,983 Morrison shares. The shares and loan notes were later transferred into one of his trusts. His immediate family and related trusts had held over 14 million shares in Morrison.

By the autumn of 2004, the Scottish trusts had shareholdings in Anglian which were then worth £14.5 million.

In October, 2004, while considering selling the Scottish trusts’ Anglian shares, it emerged that selling all the 1,933,612 Anglian shares directly on to the market, would incur a capital gains tax liability of £4.5 million.

The tribunal was told that after taking legal advice, a tax avoidance scheme was set up involving transferring the shares to the Irish trusts and using “specially created options”, allowing the Scottish trustees to sell them.

The scheme was devised to take advantage of a much lower capital gains tax bill of £53,638.82 that would arise if the shares were sold in Ireland, according to findings of fact in a tax tribunal decision.

Three new Irish trusts, which mirrored the Scottish trusts, were set up and were then “repatriated” to the UK before April 5, 2005, with trustees replaced by the Morrison trustees.

In a challenge to the Upper Tribunal by Sir Fraser and the three Scottish trusts, a fact statement said: “The creation of the Irish Trusts had no purpose other than the avoidance of tax. They would not have been created otherwise.”

Factual findings made by the original first-tier tax tribunal said: “The Irish Trusts were created specifically as a vehicle to carry out the scheme to enable capital gains tax to be avoided on the sale of the Anglian shares.”

Sir Fraser’s legal team would not comment on the case.

Two tribunals have so far supported the taxman’s view