Mr Zahawi is a very astute businessman with a net worth of £100 million and seemed an ideal choice for a senior party position as Conservative Party Chairman. 

What lead to his sacking today by PM Rishi Sunak?

Rishi has pledged ‘integrity, professionalism and accountability at every level.’ Mr Zahawi’s actions regarding a tax enquiry led to a serious ethical breach in the ministerial code and resulted in his sacking today.

According to the BBC, in 2000, Mr Zahawi cofounded YouGov and transferred 42.5% of the share capital to a trust called Balshore Investments, which is registered in the offshore tax haven of Gibraltar.

YouGov then became a successful business and Balshore Investments sold the 42.5% holding for an estimated 27 million in 2018.

Mr Zahawi originally denied being a beneficiary of the Balshore Investment Trust and claimed he had no capital gains tax liability in relation to the 27 million capital gain.

Instead, he suggested that his father was the beneficiary of the trust. As a result, the gain actually accrued to his father who is believed to be non UK resident hence was not subject to UK capital gains tax on an offshore asset.

While HMRC accepted that his father was entitled to some founder shares, they felt that the lion’s share of the shares belonged to Mr Zahawi hence should be within the scope of UK capital gains tax.

HMRC have a specialist tax unit called the ‘Wealthy Team’ who fast-tracked Mr Zahawi’s case. Wealthy people are defined as having incomes of more than £200,000 or assets of more than £2 million.

The capital gains tax liability, Mr Zahawi was assessed on amounted to £3.7 million as sales of shares worth 20 million were attributed as belonging to him.

In addition, HMRC applied a 30% penalty to this amount £3.7 million x 30% =£1.1 million resulting in a total liability of £4.8 million. After adjusting for interest, the final liability exceeded £5 million. This was settled in full by Mr Zahawi and HMRC subsequently closed off the successful enquiry.

The main bone of contention here was that Mr Zahawi claimed that the error was ‘careless and not deliberate’. In addition, he did not make the required ministerial disclosures in terms of the tax investigation.

This emphasises the importance of ethics in all areas of your professional life.

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