No doubt Kenneth McFarlane, the Deloitte tax partner, thought there was an important point to be litigated in contesting the divorce settlement with his wife Julia. The case was certainly interesting and sets a new precedent in terms of the valuation of a wife’s contribution to a marriage. But did he really want to have all his financial details discussed in the media?
The House of Lords decision said that the £250,000 he would have to pay his wife was a third of his salary. That was a net figure, it should be pointed out. His total income in 2002-2003 was almost £1.3m.
But probably most troubling was something not discussed in the House of Lords judgment but in the Court of Appeal. It emerged then that several of the McFarlane’s properties had been bought through ‘partnership loans’. The Clerkenwell flat he bought in 2001was financed by a ‘tax efficient partnership loan’ according to the court.
The documents then say: ‘The husband [then] formed a relationship with one of his partners and in August 2002 they purchased in the ratio of their respective financial contributions a house in Barnes for £2.94m inclusive of costs. The husband sold his flat in Clerkenwell and his new partner sold her flat. Again the purchase was largely financed by a substantial mortgage and by tax-efficient partnership loans.‘
Aside from the minor embarrassment of discussing who he was dating, what are these partnership loans and how widespread are they? The BBC Money programme piece into tax avoidance, ‘No tax please, we’re rich!’ commented on McFarlane’s loan, saying the loan was a perk that partners in accountancy firms could use, presumably by using (or rather, abusing) the tax relief available to join the partnership. Deloitte was reported as saying such moves were ‘commonplace’
If all that’s true, it’s a fairly appalling and unsavoury sort of scheme. Mcfarlane and co are, after all, rich people, and don’t need the extra tax relief to buy a house. What’s more, I understand HM Revenue & Customs are not all that bothered by such set-ups, which is surprising.
The district judge had commented: ‘The taxation concessions available to the husband in obtaining partnership loans to finance the purchase of property are very generous.’
Far more generous than they are to the rest of us, and far more generous than they should be, one might add.
Does Darwin's theory apply to taxation? Colin ponders...
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