The Story

The K2 scheme, operating through Jersey (a small island south of the UK), involved participants gifting the majority of their income to a trust, which then loaned the money back to them. As loans are not taxable income, and participants ‘gifted’ most of their income to the trust, participants reported very low taxable earnings; effective UK tax rates of approximately 1% in Carr’s reported case.

Following The Times investigation in June 2012, Carr withdrew from the scheme, publicly apologised, and repaid the tax. Most K2 participants ultimately settled with HMRC. The General Anti-Abuse Rule (GAAR, 2013) and expanded Disclosure of Tax Avoidance Schemes (DOTAS) framework were subsequently strengthened to defeat structurally similar arrangements.

Legally, K2 was avoidance rather than evasion — the mechanics were disclosed. But it operated in the space that GAAR and DOTAS were specifically designed to address: arrangements whose primary purpose is producing an outcome the tax code obviously did not intend.

How an FTR Client Would Do It Differently

The K2 story illustrates the distinction FTR draws sharply: tax planning structures a client’s affairs within the intended operation of the tax code; aggressive avoidance schemes manufacture outcomes the tax code did not intend, and are increasingly defeated by anti-abuse frameworks. Often the differentiating factor comes down to substance, i.e. is there a defensible non-tax reason for the financial structure/setup you have?‍ ‍

The substance factor is also where jurisdictions like Panama and Singapore, which are legitimate trade and finance hubs with billions of dollars of financial products and physical trade passing in and out of the country each day and hundreds of thousands of millionaires who actually live there, often withstand outside scrutiny in a way that small ‘tax haven’ islands - with little to offer apart from low tax rates - don’t.

For a UK-based high earner seeking legitimate and durable tax reduction:

• Establish genuine non-UK residency through proper Statutory Residence Test exit and re-anchor in a favourable jurisdiction (UAE, Cyprus, Panama, Portugal, and others), with the substance and documentation to support the claim (given Jimmy has been touring internationally almost non-stop for 25 years, this could have been achievable and consistent with his lifestyle)

• Use time-limited legitimate regimes where they apply — the FIG regime provides 4 years of foreign-income exemption for genuinely new UK residents

• Corporate structuring where the beneficial owner is genuinely resident in a favourable jurisdiction, with real operational substance

• Standard pension and investment wrapper optimisation for those remaining UK-resident

• Creation and legitimate funding of offshore wealth protection vehicles that are designed explicitly with the purpose of building family wealth portfolios for future generations, not pretending you’re ‘gifting’ or ‘donating’ income to a charity/trust

These structures are not clever workarounds. They are the intended operation of the frameworks each jurisdiction has built. They are durable because they work as designed — not despite anti-abuse rules but consistent with them. They may result in paying some tax (less than 1% is rarely achievable if you want to remain resident in a high-tax country like the UK) but that doesn’t mean you can’t significantly reduce the overall amount you’re paying in tax through the legitimate structures permitted within the law; our partners have often said to clients ‘would you rather pay a lower amount that isn’t nothing (say 5-15%) and sleep easy, or pay nothing (say 0-2%) and risk prosecution?’