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Panama Papers – 10 reasons people use a tax haven

Panama Papers – 10 reasons people use a tax haven

Panama Papers – 10 reasons people use a tax haven

This week’s big financial and political story is the 11 million documents obtained from a law firm in a tax haven – Panama – known as The Panama Papers.  These documents are ticking time-bombs for many of the people named.  They are wealthy people, heads of state, politicians and people in business.  Many have good reason for not wanting their offshore affairs plastered all over the media.  These range from embarrassment to risk of prosecution and imprisonment.

It is only right to point out that there is nothing illegal for most people to set up accounts, companies or business structures in somewhere they do not live. The legality can vary according to which country you live in or pay your taxes in.

Since there is so much interest in what motivates such actions, I will list 10 of the main reasons below.

1. Tax evasion (the illegal one)

This used to be the main reason people put money abroad – to hide it from their tax-man. These days such people find it hard to spend the money hiding abroad – ie to spend it without leaving a trace.2

2. Hiding the proceeds of crime

This could be bribes, robbery, drug-dealing or other illicit activities.  Tax havens often allow you to put your money into companies there with little checking on how you came by the money.

3. Tax avoidance (within the law)

Individuals and large international businesses have the legal right to arrange their affairs to reduce their tax bills.  As we know from Google and Starbucks, this is often done by routing transactions and the associated costs via low-tax countries.  These activities are within the laws of the countries involved, but have become the subject of public ridicule.

4. Spouse/partner issues

Either before marriage or once a marriage is on the rocks, a spouse may try to get some money off-side.  This is so they don’t have to share it in future divorce proceedings. Putting it into a foreign country, or maybe a foreign company with nominee directors can disguise whose money it is. See this story.

5. Currency restrictions

Many countries limit the amount of money you can transfer out of the country.  Money may be smuggled out and then lodged in a tax-haven to keep it hidden.  Or if your business has income Worldwide, then you might send some of your money straight to the tax haven rather than sending it home.

6. Bribes and commissions

I think we will see from the Panama Papers that a number of the people with money controlled via Panama were receiving money they couldn’t admit to at home.  They may have been serving politicians, sports administrators or business-people.  The money may be bribes for turning a blind eye, or commissions for securing a lucrative deal.

7. Valuable property transactions

People owning large houses, planes and yachts often have them held in other names, and registered in other countries.  Often using companies or trusts based in tax havens.  This used to be popular with expensive London properties to save on stamp duty when selling.

8. Hiding assets from creditors

If someone realises their business is going down the tubes, they may stash some money overseas for a rainy day.  This could leave them funds to spend should they be made bankrupt.  Of course this is illegal as well as immoral – if you are declared bankrupt you must declare all your assets, no matter where you have them.

9. Hiding your name

Offshore tax havens make it easy to hide your connection to money or property.  The use of nominee directors is common – where some locals are paid to be the directors or trustees.  They actually do what you tell them to, but your name doesn’t appear. (Remember ‘The Night Manager’?)  I expect the Panama Papers will include correspondence linking the people with the money to those who are fronting-up the companies or trusts.

10. Secrecy and commercial confidentiality

The secrecy offered by tax havens is attractive to many wealthy people and big businesses.  It may allow them to bid for or invest in projects without the person behind the money being known.  Sometimes there will be sensible and legitimate commercial reasons for this. I suspect however that some of the other 10 factors are also involved when people use these tax havens.


The Panama Papers story has been prepared over the past 8 months, and the repercussions will last for years.  As the information comes out and turns to confessions and prosecutions, we can expect this to be the gift that keeps on giving.

VIDEO on this story – see here

The #PanamaPapers story is being run by The International Consortium of Investigative Journalists – see


Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – or 028 9080 6080.

Will you die without a will? David Bowie knew better

Will you die without a will? David Bowie knew better

Die without a will and you leave a mess.

David Bowie left a will.  Because of this, and his years of tax planning, his multi-million pound estate is reckoned to face very little Inheritance Tax.

After over 20 years of practice, and some personal as well as professional experience, my article today is to highlight why you must make a will – and make the appointment this month.

When we hear that an appalling 54% of us die without having made a will (intestate) it shows that people do not realise just how important this simple matter is.

Make a will, and use a solicitor. Not expensive.
Make a will, and use a solicitor. It’s not costly.

Here are ten tips gleaned over the years:

  1. Do you want the government rules to dictate who gets your money and property when you die?  This is what happens if you die intestate.  Then the government rules set down who gets what.  It might not be how you want it.  Do you want to hand that much power to the government?
  2. Don’t assume you can relax because ‘sure everything will go to my spouse.’  Firstly this may not be correct. It depends on where in the UK you live and how much you were worth.  Secondly – and this is important – you don’t know that you will die first.  Whoever is left on their own – if they die without a will then the intestacy rules will be very important.
  3. Based on the above point it is vital that both parties to a marriage or civil partnership set out their wishes on death.  And of course is you are not in either of these, the ‘other half’ will get nothing on your death if you die intestate.
  4. Making a will is easy.  I made my first one in my early twenties.  By making one you achieve two things.  Firstly you have set out who should get what.  Secondly if your circumstances, or opinions, change, you have a clear incentive to get down to the solicitor and change your wishes.  A simple will should cost no more than a couple of hundred pounds.
  5. Don’t use a will kit you download or buy in a shop.  It is true that you could use one and it may end up being a valid will.  However a lot of these are faulty in some way, and this is usually discovered when it is too late – you are dead!  Then the cost of sorting things out will be far greater than a few quid given to your local solicitor to make a proper will.
  6. A witness to your signature cannot benefit from the estate.  That would make the will invalid.  However the executor (the person you ask to handle tidying up your estate) CAN benefit.
  7. Intestacy – who inherits what is set out in a handy ready reckoner at  Note the rules are different according to which part of the UK the deceased was living in.  Apart from Scotland, if the estate is worth no more than £250,000 then the spouse gets everything, but MUST live for 28 days after the first death.
  8. Your executors are the people who must tidy up your esatate and distribute it according to your wishes.  They do not have to be legally-qualified.  Do NOT have your solicitor or accountant as one of your executors.  They may make a very convincing argument about how sensible it is.  From very painful personal experience I can state that this is a bad idea.  It means that solicitor or professional advisor must be involved in the handling of the estate, because you have named them.  This could mean higher fees than necessary.  Far better is to have other trusted friends or relatives as executors.  Tell them by all means get legal help with the job.  But get a fee quote from your solicitor, and get a couple of others too.  That way you can ensure not too much money goes in fees.
  9. Inheritance Tax (IHT) planning can be important, especially if your estate as an individual or a couple exceeds £650,000.  However do not let concerns over this tax prevent you from making a will.  Get that first one made, even if you later change it when you have someone look at the IHT situation.
  10. Make sure your nearest and dearest know where the will is located – the safe of your solicitor is a good idea.  Also tell them who your executors will be (though you don’t have to tell everyone that).

Why did I say make your solicitor appointment this month?  Simples.  To avoid further procrastinating.  Get on with it.

Death is too important to leave to chance! Make that appointment.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – or 028 9080 6080.