Panama Papers: David Cameron's tax returns show hypocrisy is rife

David Cameron sought to draw a line under the Panama Papers controversy over his tax affairs by publishing his returns for the past five years – but instead, he triggered a fresh wave of outrage.

The returns, compiled by his accountants, showed that the Prime Minister paid £75,898 tax on a total income of £200,307 for the last financial year, The Guardian reports. This included £3,052 in interest on an estimated £300,000 in savings. The figures also revealed annual earnings between Cameron and his wife, Samantha, of around £100,000 in rent from a property in Notting Hill.

As for investments, the papers showed that the Prime Minister sold all of his share and trust investments, including those in Blairmore Holdings, the offshore fund set up by his father and disclosed in the Panama Papers, in 2010, as he had earlier said. UK income and capital gains taxes were all paid at the appropriate rates.

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If all of this sounds in order, then the newspapers found something else at which to take umbrage. Cameron's returns revealed that his mother, Mary, transferred £200,000 to him over two payments in 2011, on top of the £330,000 inheritance passed on after his father's death in 2010. This was said to make up his share of the family home, which was transferred to his brother, Alexander.

The Guardian described the £200,000 gifts as "elaborate steps to minimise the amount of inheritance tax" paid, while even the right-leaning Daily Telegraph highlighted the supposed "avoidance" in its headline.

The Times - and Sunday Times – along with The Independent and even the BBC all carried critical stories focusing on the payments, which are presented as another example of Cameron's wealthy detachment from the electorate and proof of Labour's accusation that he is a tax "hypocrite" after pleading it is "immoral" to not pay one's share.

Anger reached a peak in the left-leaning Daily Mirror, which described the revelations as a "bombshell" and "hugely ironic".

Past advice

However, almost all of these newspapers have told readers to make similar gifts to family members to reduce their inheritance tax bill. It is a long-established rule that is even advocated by the publicly funded Money Advice Service.

Regulations state that up to £3,000 a year can be gifted free of inheritance tax, rising to £6,000 if no gift was made in the previous year. Much larger amounts can also be transferred, but will only become free of inheritance tax if the person making the gift lives for at least seven years afterwards.

The idea is that money not being enjoyed in a person's lifetime can be passed on to children free of death duties.

Answering a reader's letter in April 2015, titled "How can I reduce my daughter's inheritance tax bill?", The Guardian advised: "It is highly likely to be in your and your daughter's interests to give her money while you are still alive."

In an article of October last year, tellingly called "How to avoid inheritance tax", the Daily Telegraph recommended making sizeable gifts to reduce the bill, along with using trusts and other tax mitigation tactics such as enterprise investment schemes.

A year previously, the BBC published "How to reduce your Inheritance Tax bill", an article which included the advice that "giving gifts is another way to reduce your final estate value" and "another good reason to plan ahead". Even the Mirror has more than once referred to the £3,000 allowance as a way to minimise the bill that could be due.

Will the rules change?

The Tories – and a sizeable portion of the electorate – are likely to be unfavourably disposed to changing the rules on inheritance tax, which is often seen as an unfair levy on accumulated savings on which duty has already been paid.

In fact, the Telegraph today is trumpeting that Cameron is defending the right of parents to pass on money to children in this way.

There are no such ideological hang-ups for the Labour leader, Jeremy Corbyn, and his shadow chancellor, John McDonnell. The Daily Mail says that Corbyn hinted in an interview on Sunday that he would like to change the system to remove the ability for parents to make similar gifts, while McDonnell said it is wrong for someone to be able to inherit £500,000 without paying tax.

The Prime Minister is appearing in parliament today to attempt to seize back the initiative on tax avoidance. He is expected to announce a new taskforce looking into the Panama Papers allegations – and that he will bring forward the introduction of a legal offence for those aiding and abetting tax evasion.