Dodgy donors

By criticising tax avoidance — an entirely legal activity — Ed Miliband has opened up some of his own colleagues and donors to questions about their own tax affairs.

They include donor John Mills, who gave £1.65m to Labour in shares two years ago because it was the “most tax-efficient way of doing this”. The Labour leader may also see renewed scrutiny of the arrangements set up around the Miliband family home after the death of his father.

After Mr Mills donated shares in his company JML Limited he said he had been advised to do so. “It is the most tax-efficient way of doing this because, otherwise, you get no tax relief on donations to political parties,” he said.

During his visit to a north London school Mr Miliband was questioned about the arrangement used by his own family on a townhouse in north London. After Ralph Miliband died in 1994 his assets transferred to his wife, Marion. Soon afterwards his will was changed via a so-called “deed of variation” to give 20 per cent of the family home to each of his two sons.

The property was sold in 2004 to David Miliband: there was no liability for inheritance tax because his mother was still alive. Had she died before that sale the arrangement from a decade earlier would have minimised the family’s tax liabilities. That is because each individual has a tax-free threshold on which no inheritance tax is paid, currently set at £325,000. By sharing a property between several people a family can diminish the tax owed.

“The reason people use deeds of variation is to save inheritance tax,” according to John Whiting, former head of tax at PwC. On Thursday, the Labour leader said: “I paid tax on that transaction,” when asked about the deal. But he was referring to the 40 per cent capital gains tax he paid on the profits. “It can’t be tax avoidance if no tax was avoided,” said a Labour Party spokesman.

Ah, but it was. Miliband ended up paying a different amount of tax.

Mr Miliband can also expect fresh scrutiny of the tax affairs of other Labour MPs, donors and associates. Past major donors to the party include several with “non-domicile” status in Britain, meaning that they did not pay UK income tax or capital gains tax on international earnings.

These included Lakshmi Mittal, Sir Ronald Cohen and Lord Paul. Labour has also received £20,000 last August from Vitabiotics, a vitamins company owned by a holding group based in the British Virgin Islands. Andrew Rosenfeld, who died last weekend, gave nearly £1m to the Labour party and was based in Switzerland for five years after the sale of his stake in Minerva, a property company. Mr Rosenfeld has never denied accusations that he had moved to the low-tax Alpine country for tax reasons.

The public accounts committee, chaired by Labour MP Margaret Hodge, has accused PwC of “selling tax avoidance on an industrial scale”. At the same time, the Labour Party has received more than £500,000 of “donations” in the form of consultancy advice from PwC.