The Hender family have an investment company that owns, in the grand scheme of things, some industrial properties; Harwyn Limited
When everything seemed good in the world, when we started, my brother and I took roughly 10% each, paid with our own money and my mother took the rest. It was actually my father’s money that bought Mum’s shares, as Dad’s income, on any dividends, would be taxed at a much higher rate than Mum’s. Many couples do it; it is a legal tax avoidance measure.
Dad then lent roughly £1m to the company to buy the investment properties, some at Aylesham and some at Faversham. These properties had been bought off Peggy Humberstone, who had been married to Harry.
Harry had taken many risks and had invited Dad to join one of his ventures but Dad was risk averse and declined. However, Dad continued to do Harry’s books for him and they were good friends. My brother and I even went to a family party at their house in Kent.
Harry and Peggy had three children, two boys and a girl. All were highly educated but the money had turned them into useless wastes
Harry was not one of those who was good at paying taxes and soon ended up being a tax exile in Spain, with Peggy. After Harry died from a heart attack, Peggy decided that she wanted to return to England.
It was not long before the tax authorities caught up with her and she was in deep trouble. Being a friend, Dad brokered a deal with the tax authorities that meant that only when Peggy passed away, would the tax authorities take possession of her house and sell it to offset the proceeds against the unpaid tax liabilities.
Peggy needed money to live and Dad agreed to buy the Kent investment properties at a fair value.
These investment properties were then transferred to Harwyn Limited by way of a loan.
The investments raised good income and soon Harwyn was significantly increasing in value.
Roughly at the same time or maybe a few years later, my brother went on secondment to Singapore and then Australia.
When he was in Australia, he was paying little or no income tax as he was in “tax limbo”. My father wrongly thought that this applied to ALL types of taxes, including capital gains tax. But, it only applied to income and NOT capital transactions
So, Dad thought that he could generate some tax free cash. He arranged that they company bought back Martin’s entire holding and the cash proceeds, which from memory, equated to roughly £450,000 was “paid” to Martin but then Martin instantly made a loan to my father for the same amount.
The shares that were bought back were then cancelled, in accordance with UK accounting practice.
This money was never taxed, whereas it should have been subject to UK Capital Gains Tax. Basically, my brother evaded CGT on £450,000.
Fast forward a couple of years and Dad wanted to do what was called a “Melville transaction”. Basically, some of Mum’s shares were put in trust for Martin and I.
However, Martin was allocated more shares than I was in this trust. So, basically, he got the so called “tax free” amount when he sold his shares and would then get them back, so that his holding would again be the same as mine.
I am convinced that this Melville transaction was to do nothing more than “give back” the shares to Martin that he had sold in the first place.
This proves that even before my father got Alzheimer’s, he was always going to favour his prodigal son, Martin, by giving him cash and extra shares to replace the shares that he had sold in the first place.
This diagram may go above certain peoples’ heads but, for some, they will understand what my father has tried to do, again for the benefit of my brother.