The Sunday Times | May 10, 2009
By Robert Watts

THE Queen’s banker, Coutts, has been caught operating an unlawful £1 billion tax avoidance scheme for some of its wealthiest clients.

The scheme involved a Swiss-based investment trust that made a deliberate loss, allowing clients to make deductions from their UK tax bills.

About 300 Coutts customers have been forced to repay up to £400m in tax they had hoped to avoid after HM Revenue & Customs (HMRC) ruled that the Castle Trust scheme had breached UK tax laws.

Many of the clients claim they were poorly advised and are planning to sue Coutts, which is owned by the state-controlled Royal Bank of Scotland. It raises the prospect of ordinary taxpayers compensating some of Britain’s richest people.

Coutts earned fees estimated at almost £500,000 via the scheme.

A financial adviser to one of the clients said: “This group of claimants includes some very wealthy entrepreneurs . . . one who is a household name.”

Details have emerged after a recent decision published by HMRC’s special commissioners, independent officials who oversee tax laws.

The scheme began in 1997 and used a series of complex share transactions - spanning Germany, Pakistan and Guernsey - to ensure the trust made a loss of nearly £1 billion.

Working in tandem with UBS, the Swiss bank, Coutts then sold stakes in the trust to its customers, who deducted their share of the loss from their UK tax bill for capital gains.

Coutts declined to discuss the Castle Trust and said it was “unaware” of any legal action by customers.