Property tycoon Jamie Ritblat is battling the UK’s tax authority over tens of millions of pounds that HM Revenue & Customs claims is owed by him and his real estate investment firm, Delancey.
HMRC claims income and employment-related taxes are owed on £141mn of profits from Delancey’s flagship fund that was paid from a trust to 24 employees, including Ritblat.
The payments began months after HMRC accepted just £400 in a 2015 settlement that barred the agency from collecting further taxes from the trust’s beneficiaries or Delancey.
HMRC now alleges the deal was agreed on the basis of misrepresentations made by Delancey and the trust through advisers EY and law firm Olswang during the settlement negotiations.
The dispute threatens to cast a shadow over one of the UK’s best known property investors, whose portfolio spans several of London’s biggest regeneration projects, such as the Earl’s Court development.
Ritblat and Delancey have asked the High Court to hold HMRC to the 2015 deal, which would leave the £141mn effectively untaxed apart from the £400 settlement payment. HMRC has sought to tear up the agreement.
In a June court filing, HMRC said it was not “at this stage” alleging the claimed 2015 misrepresentations were made fraudulently or recklessly.
Delancey said: “Unfortunately proceedings had to be brought against HMRC as they have breached the terms of an agreement in respect of an employee benefit trust settlement opportunity which they publicly initiated and offered to hundreds of employers and trusts.”
The company added: “We believe that this agreement is valid and strongly reject the allegation that misrepresentations were made by the trust, its professional advisers and Delancey.”
HMRC said: “We are committed to ensuring that everyone pays the right tax under the law.”
Law firm CMS, which merged with Olswang in 2017, said: “HMRC has made no allegations of wrongdoing against CMS (formerly Olswang) and there is no basis for their doing so.”
EY said: “We strongly refute any suggestion of wrongdoing by EY.”
The son of Sir John Ritblat, who grew British Land into a multibillion-pound landlord and developer, Jamie Ritblat has carved out his own reputation since launching Delancey in 1995.
Ritblat’s landmark deals came in the wake of the financial crisis: Delancey took rival developer Minerva private in 2011 and spun off the company’s assets, before purchasing the 2012 Olympic Athletes Village in Stratford, east London, in partnership with Qatar’s sovereign wealth fund. In 2019, alongside Dutch pension fund APG, Delancey bought the Earl’s Court exhibition and surrounding land in west London for £425mn.
The firm has donated £350,000 to the Conservative party since 2011, including a £100,000 gift in 2020. The company operates as an adviser to funds that include outside investors.
The battle between Ritblat and HMRC centres on a trust set up in 2007 as Delancey raised €1.5bn from investors for its flagship client fund, known as DV4 Limited.
The DV4 Trust is an employee benefit trust and held the Delancey employee profits, also known as carried interest, from the DV4 Limited investment fund. Sitting between the two entities was a British Virgin Islands partnership. The DV4 Trust owned most of the partnership, and the partnership in turn owned shares entitling it to 20 per cent of DV4 Limited’s profits if the fund achieved at least a 7 per cent annual return.
DV4 Limited did not beat the 7 per cent hurdle rate until the financial year ending March 2014, according to the June HMRC court filing, which cites the DV4 Limited and partnership accounts. Carried interest then began accumulating, totalling £133mn by March 2015.
At the time of the £400 settlement in July 2015, no distributions had been made, according to HMRC. In January 2016, the trust paid £10mn to Ritblat.
In the tax years 2015/16 to 2018/19, the DV4 Trust made distributions to Delancey employees totalling £141mn, of which £63mn went to Ritblat personally, according to HMRC.
Employee benefit trusts were once widely used as tax avoidance vehicles. Companies would receive tax deductions on payments into EBTs, but the employee beneficiaries would not have an immediate corresponding tax liability.
HMRC has cracked down on EBTs for more than a decade and in 2011 laws were enacted to further curtail abuses. “HMRC have been challenging EBTs for some years and nearly always win,” said Catherine Gannon, founder of the law firm Gannons.
Between 2011 and 2015, HMRC invited employers to resolve any liabilities related to such trusts through negotiation rather than litigation. In 2015, the DV4 Trust entered the settlement programme.
DV4’s trustee was Harbour, a Cayman Islands-based fund services company. Harbour did not respond to a request for comment. The trustee’s tax and legal representatives were Delancey’s longtime advisers EY and Olswang. HMRC says both advisers were also acting on Delancey’s behalf in the settlement talks.
HMRC in its June court filing alleged EY downplayed the significance of the DV4 Trust during the settlement negotiations by referring to just £1,000 in assets it had in 2008 and not telling HMRC that by March 2015 it had a capital position of £125mn.
The court filing quotes from a summary of “key facts” provided by EY that refers to the DV4 Trust investing £1,000 into a “BVI partnership” alongside third-party investors who made equivalent investments. The portions quoted in the filing do not describe the partnership being a vehicle for carried interest rewards from the Delancey fund.
HMRC alleges the document gave the false appearance that the partnership was an arm’s length commercial investment.
The trust in 2008 allocated portions of its ownership of the BVI partnership to specific Delancey employees. EY proposed a settlement of £400 to be paid by Harbour on the basis that in 2008 the value in the trust had not changed since the initial £1,000 invested by the trustee.
“It is considered unlikely that there would have been any change in the value of the investment [the trust hasn’t received any return whatsoever]. Also, as a third party paid an equivalent amount and since that also represents 100% of the trust assets, we consider that this is reasonable in the context of a voluntary settlement,” EY partner Jim Wilson wrote in an email to HMRC in June 2015.
HMRC accepted the offer and agreed the £400 settlement with clauses blocking it from seeking additional taxes from Delancey or any of the trust’s beneficiaries.
Delancey is no stranger to fights with the taxman. Ritblat’s previous fund, DV3, had attracted HMRC’s ire over a scheme to avoid £2.6mn worth of stamp duty tax on its £65mn acquisition of the Dickins & Jones building on Regent Street in central London in 2006.
The scheme involved transferring the property to a BVI partnership on the same day that DV3 bought it for the same price. HMRC lost twice in the tax courts before finally winning at the Court of Appeal in 2013.
The trigger for this latest tussle was Ritblat’s 2015/2016 tax return, filed in January 2017, according to the HMRC filing. The return disclosed the £10mn payment from the DV4 Trust in January 2016.
The tax authority opened an inquiry into his tax return in December 2017, beginning years of legal wrangling. In January 2018, Ritblat’s representatives gave HMRC a letter from Harbour stating that it as trustee had exercised its discretion to award him £10mn.
In February 2020, Ritblat’s lawyers provided HMRC with accounts for the BVI partnership and the DV4 investment fund entity, prepared by EY, the HMRC filing says. The partnership’s carried interest shares in the fund entity as of March 2015 were worth £133mn, and the DV4 Trust owned 95.5 per cent of the partnership.
In its filing, HMRC said that if it had the full picture of the DV4 Trust at the time, it would not have agreed to the £400 settlement.
The stakes for Ritblat and Delancey are significant.
Ritblat initially went to the tax tribunal to force HMRC to close its inquiries into three years of his personal tax returns from 2015/16 to 2017/18. He succeeded, but the closure notices HMRC issued in September 2020 claimed he owed income taxes on £18.4mn of payments from the DV4 Trust in those three tax years. The notices were accompanied by side letters noting that HMRC could make further arguments that he owed other taxes on the payments that would make his liability much larger.
Ritblat has appealed against the closure notices in the tax tribunal. He also sued HMRC in the High Court in 2021, seeking a declaration that the 2015 settlement precluded HMRC from making the “threats” he claims it did in the side letters.
HMRC has denied making threats and issued a counterclaim in that case in June this year. The tax authority has argued that if the 2015 settlement is upheld, then it should be entitled to damages from Delancey and Harbour for lost tax revenue.
Ritblat and Delancey are due to file their response to the counterclaim by the end of September.
The HMRC counterclaim noted other Delancey employees have sought to use the 2015 settlement to avoid taxes on DV4 Trust payments, including managing director Paul Goswell, a member of the council at King’s College London.
Earlier this year, HMRC opened a new front in the war, suing Delancey itself for £32mn of national insurance contributions it claims is due on the £141mn of total distributions the DV4 Trust made between 2016 and 2020. The lawsuit has been stayed pending resolution of the other cases.