Coutts, often referred to as the "Queen's Bank" by virtue of it being reputed to be the bankers to the British Royal Family has been caught operating an unlawful £1 billion tax avoidance scheme for some of its wealthiest clients.
In brief, the scam centred on a Swiss-based investment trust (Castle Trust) that made a deliberate loss. This loss was then deducted from the UK tax liabilities of clients who held a stake in the trust.
However, HM Revenue & Customs (HMRC) ruled that the Castle Trust scheme had breached UK tax laws and consequently approximately 300 Coutts customers have been requested to repay up to £400m in tax.
Many of the clients claim they were badly advised and are planning to pursue legal action against Coutts. For their part in the scheme, it is estimated that Coutts earned fees close to £500,000.
The scheme, which began in 1997,used a series of complex transactions - spanning Germany, Pakistan and Guernsey - to ensure that the trust made a loss.
Working in tandem, Coutts and the Swiss bank (UBS) then sold stakes in this trust to its customers who in turn deducted their share of the loss from their capital gains tax bill.
Coutts declined to discuss the scheme stating that it was “unaware” of any legal action by customers.
