Duke of Westminster’s five main estates: 11,500 acre Eaton Estate in rural Cheshire; 23,500 acre Abbeystead Estate in rural Lancashire; 96,000 acre Reay Forest estate in rural Sutherland, the La Garganta Estate in rural Spain and 300 acres of prime central London land in Mayfair and Belgravia worth c. £10bn.
Hugh Grosvenor became Britain’s youngest billionaire following his father’s death in 2016. Most of the father-of-four’s personal estate was left in trust with the income going to his widow Natalia but trustees were given the power to transfer all or any of the capital to her. The UK’s inheritance tax of 40 per cent of any assets worth over £325,000 is not payable on anything left to a spouse or on charitable donations. If it had been applied to the late Duke’s entire wealth, the liability would have been around £3.4 billion.
Paradise Papers bring to light key parts of structure used to manage £9.5bn fortune inherited last year by Hugh Grosvenor, 26
Juliette Garside @JulietteGarside Tuesday 7 November 2017
The international property empire of the dukes of Westminster pumped dividends worth millions of pounds into secretive companies in Bermuda and Panama, the Paradise Papers reveal.
Hugh Grosvenor became Britain’s youngest billionaire after his father’s death last year. Thanks to careful planning by his predecessors, the 26-year-old inherited the sprawling Grosvenor Group without having to pay the 40% death duties imposed on most British taxpayers.
A leak of 13.4m files, including documents from the archives of the offshore law firm Appleby, combined with public information from the UK companies register, has brought to light key parts of the structure used to manage the seventh duke’s fortune – estimated at £9.5bn in the Sunday Times rich list.
What are the Paradise Papers?
The Paradise Papers is a special investigation by the Guardian and 95 media partners worldwide into a leak of 13.4m files from two offshore service providers and 19 tax havens’ company registries. The files reveal the offshore financial affairs of some of the world’s biggest multinational companies and richest individuals, and set out the myriad ways in which tax can be avoided using artificial structures
They reveal for the first time the names, settlors and creation dates of the five UK trusts that have been used, for generations, to keep in the hands of a single family an estate that includes much of Belgravia and Mayfair in London, 165,000 acres of British countryside, hundreds of developments in North America, Australia and Hong Kong, and an island in Vancouver.
The trusts established by successive dukes to control Grosvenor are UK resident and subject to British tax – they pay a 6% charge on the value of many of their assets every 10 years. Assets worth £600m belonging directly to the 6th Duke, which were not held in trust, were inherited by his wife exempt from tax, as is normal for married couples. Death duties will be payable in the UK when her children inherit.
But the papers show that not all the family’s wealth was managed onshore. Until 1999, about half of the shares in a subsidiary that ran Grosvenor’s North American and Australian operations were controlled by tax haven companies.
Managed from Canada, the international wing of Grosvenor was created in 1953 when the estate made its first big expansion outside Britain by acquiring the 485-hectare Annacis Island in the middle of the Fraser river in Vancouver.
By the turn of the century, Grosvenor International Holdings Ltd (GIHL) had assets worth more than C$1bn (£600m), with 42% of its shares held by screen companies in Bermuda and Panama.
Vesta Ltd, incorporated in Bermuda in 1964, controlled Trumpet Company Ltd, another Bermuda company, which in turn held shares in GIHL. Alongside it was a parallel Panama structure: Nakar Holding SA, incorporated in 1977, owned shares in Compact International Inc, which in turn held part of GIHL.
The identities of the owners of these four companies have never been publicly disclosed by Grosvenor. However, Appleby’s internal database listed Vesta and Trumpet as belonging to the “Grosvenor Family Trust”.
Grosvenor’s annual reports show millions in payments collected in Panama and Bermuda: a combined £1m in 1999, direct from GIHL, and a similar sum the year before. Eventually, the offshore companies swapped their shares in GIHL for a 6.5% holding in the overall Grosvenor Group, collecting £3.7m over a seven-year period.
In March 2007, Grosvenor announced it was buying out Vesta and Nakar for £40m. The reason given was to “better align the shareholders’ interests with the group’s activities”. The companies were dissolved later that year.
A spokesman for the Grosvenor estate said: “Two small overseas trusts were established over 50 years ago, when it was accepted common practice to facilitate the acquisitions of some non-UK assets. No family member has received any benefit derived from these but, as UK residents, if they ever did then they would be fully liable to tax in this country.
“Our policy is to uphold the highest standards of business practice. We are careful to ensure that our ownership of overseas property is through vehicles incorporated in the same country as the asset. Where the group occasionally has entities in offshore locations, it is typically as a result of the requirements of joint-venture partners.”
The papers reveal a number of other offshore entities, some of which held investments in Asia. By 2009, the sixth duke’s trustees appear to have become wary of transacting too much of his business via tax havens.
That year, a member of the Appleby marketing team visited Jeremy Moore, the head of tax at Grosvenor Group, and another colleague. He took a few notes on their conversation. Grosvenor liked working with the firm but was wary of giving it too much to do. Appleby’s officer noted: “They do not have too many offshore holdings as they have to be very careful reputationally, as the property group is owned by trusts for the Duke of Westminster’s family.”
Documents from 2012 show Grosvenor’s shares were held by five trusts and by the sixth Duke of Westminster in his name. The oldest trust, simply referred to as ADWSLF in the data, was settled, or created, in 1953 by the second duke upon his death. The family’s enthusiasm for trusts may be explained by the fact that death duties of £17m swallowed much of the second duke’s £25m fortune.
The next oldest was the Fourth Duke of Westminster’s Settlement, which dates from 1964, three years before his death.
There is a Fifth Duke of Westminster’s Settlement, created in 1965, and the sixth duke, who died last year, created two more. The first was settled in 1971, the second in 1974. His will, published recently, suggests he created yet more trusts before his death.
The tax advantages of UK trusts such as these have been gradually whittled away. Since 1984, they have been subject to a 10-yearly tax charge, although there are exemptions for agricultural land and trading businesses.
Nimesh Shah, a partner at the accountants Blick Rothenberg, said: “Nowadays, trusts are used for a variety of reasons and tax is only one of those reasons. These trusts are about trying to keep control of the assets within the family unit.”
There is no public register listing the names, beneficiaries or holdings of any UK trusts, despite the fact such vehicles control vast tracts of land and property in Britain. HMRC has a register of trusts that pay tax, but this is not available to the public. In Europe, MEPs have been pushing for each member state to improve transparency by introducing public registers of trusts. The papers reveal how reluctant Grosvenor employees were to share trust details.
On one occasion, when tasked with setting up a Bermuda company in 1999, Grosvenor representatives asked Appleby to “seek dispensation” from the normal rules for declaring who the trust beneficiaries were.
The information was required by the Bermuda Monetary Authority (BMA) before the company could be incorporated. Because the Bermuda company was to be controlled by trusts, Appleby would need to follow standard procedure and disclose the names of their beneficiaries and other basic information to the regulator.
Grosvenor did not want to share this data. In a fax dated 9 November, Appleby promised to “revert to the BMA to determine what they will give in on”, saying it had already obtained from the BMA that “they have indicated they will not require a personal declaration from the duke”.
The Bermuda entity, eventually called Grosvenor Land Property Fund Ltd, would go on to invest $30m in developing luxury homes in some of Hong Kong’s most desirable neighbourhoods, in a joint venture with another wealthy family, the Keswicks, through their Jardine Matheson Group.
The man from Appleby warned that “it raises ‘alarm bells’ when persons decline to disclose such information fully” and disclosure of ownership was a longstanding policy “designed to preserve Bermuda’s relatively clean image in the offshore world”.
He then proposed an unusual arrangement: “Would it make a difference if the information requested was placed in a sealed envelope and marked for the eyes of the CEO of the BMA only so that such information does not pass through the hands of intermediaries such as ourselves?”
The Grosvenor spokesman said, after checking the records, no evidence had been found “to suggest that the trustees asked for any such dispensation from the Bermuda Monetary Authority in 1999”. He said investors in the property fund would have paid tax in their own countries and the use of jurisdictions such as Bermuda was common for these types of funds, in order to avoid investors being taxed twice.
The information supplied, whatever it was, appears to have satisfied the Bermuda authorities, because the company was successfully incorporated on 16 December.
The seven dukes
First duke: 1825-1899. Hugh Lupus Grosvenor was MP for Chester and died the richest man in Britain.
Second duke: 1879-1953. Hugh Richard Arthur Grosvenor, grandson of the first duke, was known to family and friends as Bendor and was a lover of Coco Chanel. He left no son.
Third duke: 1894-1963. William Grosvenor was brain damaged at birth, and died unmarried and childless.
Fourth duke: 1907-1967. Gerald Hugh Grosvenor, cousin of the second duke, left no son.
Fifth duke: 1910-1979. Robert George Grosvenor, brother of the fourth Duke, lived in Northern Ireland at Ely Lodge on an island in the middle of Lough Erne.
Sixth duke: 1951 to 9 August 2016. Gerald Cavendish Grosvenor, son of the fifth duke, mentor to Prince William, served in the Territorial Army for 40 years.
Seventh duke: born 1991. Hugh Richard Louis Grosvenor is Britain’s youngest billionaire.