Queen’s estate invested in offshore funds
Paradise Papers leak reveals Duchy of Lancaster put money through tax haven into controversial retailer criticised for exploiting poor families
Millions of pounds from the Queen’s private estate has been invested in a Cayman Islands fund as part of an offshore portfolio that has never before been disclosed, according to documents revealed in an investigation into offshore tax havens. Files from a substantial leak show for the first time how the Queen, through the Duchy of Lancaster, has held – and still holds – investments via funds that funnelled money into an array of businesses, including a chain of UK alcoholic drinks retailers, and the retailer BrightHouse, which has been criticised for exploiting thousands of poor families and vulnerable people. The duchy admitted it had no idea about its 12-year investment in BrightHouse until approached by the Guardian and other partners in an international project called the Paradise Papers. Although the duchy characterised its indirect stake in BrightHouse as negligible, it would not disclose the size of its original 2005 investment that coincided with a boom in the company’s value. BrightHouse has since been accused of overcharging customers, and using hard-sell tactics on people with mental health problems and learning disabilities. Last month it was ordered to pay £14.8m ($19.4m) in compensation to 249,000 customers.
Critics are likely to ask why the Queen had investments in this area in the first place, and the duchy may face awkward questions about whether there was enough oversight and management of the monarch’s “onward investments” to ensure they remained ethical.
The duchy has also disclosed investments in “a few overseas funds”, including one in Ireland, and will be under pressure to give details of where the money is being held.
Although the estate said it received no tax advantages from investing offshore, the revelations about the finances of the Queen, one of the world’s richest women, will be likely to re-energise campaign groups and some MPs who have demanded greater scrutiny of royal spending. The disclosures also highlight the lack of transparency that has been a concern
for critics, who have railed against the moral ambiguities of the offshore sector and demanded major changes.
The Duchy of Lancaster is a private estate that generates a return for the reigning monarch. It was set up in 1399 and manages land and investments held in trust for the Queen, who also holds the title of the Duke of Lancaster.
Recent filings by the duchy show that it had assets worth £519m at the end of March. The Paradise Papers offer an unprecedented glimpse of the way the duchy has invested some of its money, including details of complex offshore arrangements that are not set out in the royal household’s annual statements.
According to the leak, the duchy has used offshore private equity funds designed to shield UK investors from having to pay US tax on their holdings. Investors who do not pay tax in the UK can face a tax bill if they invest in certain types of funds in the US, although the duchy said it gained no tax advantage from investing via the Caymans.
The stakes in the off-licence chain Threshers and BrightHouse can be traced back to an investment into one of these schemes by the duchy in 2005. The papers show it committed £7.5m to Dover Street VI Cayman Fund LP. The duchy became a limited partner in the scheme at the same time. Dover Street VI Cayman Fund LP is a “feeder” for another American fund, which invests in venture capital and private equity funds around the world.
Letters in the Paradise Papers show how the duchy’s money sluiced through various funds, and where it ended up. Managers from Dover Street set out what cash they needed and where they had been putting it on behalf of investors. In a letter dated September 2007, they explain they have taken an interest in a private equity vehicle called Vision Capital Partners VI B LP. The Dover Street fund was one of 27 limited partners making an investment.
The letter explains that this was “formed by Vision Capital Partners to acquire a portfolio of two retailers in the United Kingdom”. Two months earlier, Vision Capital Partners VI B LP had bought BrightHouse and Threshers.
The investment in Vision Capital Partners by the Dover Street fund was among several outlined in the managers’ call for funding, to which the duchy was asked to contribute $450,000 – 6% of its commitment.
The Dover Street VI fund was set up to run until the end of December 2014 and since then has been selling off its holdings and returning funds to investors. It is unclear from the leak what has been returned to the duchy.
The Paradise Papers show only one payout from the fund, a letter from June 2008 explaining the duchy was entitled to $361,367.
It seems to have received the distribution after paying a tiny amount of tax – 0.4% ($1,505) – which it appears to have offset against the next payment into the fund. BrightHouse, which has more than 270 stores across the UK, has previously denied claims as to its conduct and accused critics of misrepresenting the business.
But it has been under investigation by the Financial Conduct Authority, which last month said it was not a responsible lender.
The company was also forced to change the way it checked customers’ finances before granting them loans, in order to keep its consumer credit licence.
BrightHouse has limited its tax bill through a large loan to a Luxembourg holding company. Between 2007 and 2014, it reported £1.6bn in revenue and made an operating profit of £191m, but paid less than £6m in corporation tax, analysis by Private Eye magazine found.
The duchy’s chief finance officer, Chris Adcock, told the Guardian it had been unaware of the indirect holding in BrightHouse. “Investors commit to a fund for a given period and are not party to its ongoing investment decisions,” he said.
The Paradise Papers show that, through the same indirect investment, the Queen’s money was invested in Threshers before it went into administration in 2009.
When asked what other offshore holdings the duchy had, Adcock said it “invests in a fund domiciled in Ireland”, but declined to give details. In a second statement the duchy admitted it “operates a number of investments and a few of these are with overseas funds. All of our investments are fully audited and legitimised.”
The duchy would not give details of the size of the original stake in 2005, or what had been taken out since then.
“The Dover Street investment was bought in 2005 and forms only 0.3% of the total value of the duchy. The duchy investment in BrightHouse is through a third party and equates to £3,208,” it said.
Adcock confirmed that the duchy invested £5m in the Jubilee Absolute Return Fund, which invests in hedge funds.
At the time of the investment in June 2004, the fund was based in Bermuda. In 2006 it moved to Guernsey. At the outset the fund’s manager, Fauchier Partners, sought assurance it would not be taxed in Bermuda on its income or any gains until 2016. The fund, which has been invested in by a string of charities and council pension funds, is now run by a different manager and has been renamed the Permal Absolute Return Fund.
The papers do not make clear what money, if any, the duchy made from this arrangement. Adcock said the duchy had redeemed its stake in the fund in 2010, but its investment in the Dover Street fund was expected to last for another two to three years while the fund was wound up.
“We are not aware of any tax advantages to the duchy in investing in offshore funds. The duchy’s investment policy is based on advice and recommendations from our investment consultants and asset allocation, rather than tax strategy,” he said.
In a statement, BrightHouse said it complied with all relevant tax regulations and paid tax in full and on time.
“We are appreciated by our customers, because we help those financially excluded on the basis of low incomes and poor credit histories to get everyday items they otherwise couldn’t have,” the company said.