Tax Exile Guy Hands Finds Lonely Guernsey Haven Is No Heaven

By Anne-Sylvaine Chassany

Feb. 18 (Bloomberg) -- Guy Hands, the U.K. investor whose fund bought the Beatles record label, says he hasn’t visited his wife and two school-age children at their home in Kent, where he was born near London, since April.

The founder of Terra Firma Capital Partners Ltd. never flies through London airports and has missed industry awards in the U.K. capital since moving to Guernsey in the Channel Islands to reduce taxes, according to court filings. He doesn’t see his parents or his doctors in London anymore.

The decision to become a tax exile has proven a “burdensome option for me and my family,” Hands said in documents filed Feb. 4 in U.S. District Court in Manhattan as he sought to prevent a court fight with Citigroup Inc. from being heard in the U.K. His story is a cautionary tale for bankers and money managers who are tempted to flee London’s rising taxes.

“It’s a personal choice: you have to trade off the right infrastructure, work environment, the country you grew up in, your family, the schools, your whole life, with wealth,” said Richard Wilson, partner at London-based private equity firm Apax Partners LLP. “My trade off would be to stay where I am.” Wilson, who is chairman of the European Private Equity and Venture Capital Association, lives near London.

Financial executives are threatening to leave the U.K. since the government decided to raise the top rate of personal income tax to 50 percent and put a one-time 50 percent tax on bankers’ bonuses. Hedge fund firm BlueCrest Capital Management Ltd., inter-dealer broker Tullett Prebon Plc and insurer Chaucer Holdings Plc have said they may move employees overseas.

Symbol of Discontent

Hands’s departure 11 months ago from the country where he became rich for low-tax Guernsey created headlines in the London newspapers and made him a symbol of the discontent among the wealthy over rising taxes. It may have also made him a target for government tax enforcers, he said.

“Because of my high public profile in the United Kingdom and the considerable press interest and commentary on my leaving, I understand that I can expect higher than normal Inland Revenue scrutiny of my valid claim to non-residence,” Hands said in a court filing.

He declined to comment for this story.

In the filing, Hands said there is “considerable uncertainty” about what constitutes being a U.K. resident for tax purposes. That anxiety was heightened among exiles on Feb. 16, when the U.K. court of appeal upheld a previous decision ruling that British entrepreneur Robert Gaines-Cooper was subject to British taxes even though he had settled and married in the Seychelles Islands in the 1970s.

Concerns ‘Overblown’

It appeared England remained “the center of gravity of his life and interests,” the court of appeal said in the ruling. Gaines-Cooper had “many ties” in Berkshire and Oxfordshire such as an estate in Henley-on-Thames, it stated.

Citigroup, in a Feb. 12 response to Terra Firma’s filing, called Hands’s tax concerns “overblown” and “irrelevant.” The bank said video links made it possible for Hands to prepare for the trial and testify “without setting foot in England.”

Hands, 50, a dyslexic who graduated from Oxford University, was a Goldman Sachs Group Inc. bond trader who made his name in the U.K. by creating the private equity unit of Japanese lender Nomura Holdings Inc. in 1994. He started Terra Firma in 2002, raising 2.1 billion euros ($2.9 billion) for investments such as the German rest-stop chain Autobahn Tank & Rast Holding GmbH.

The Sunday Times estimated his personal wealth at 250 million pounds ($393 million) in 2008.

EMI Acquisition

Terra Firma’s acquisition of EMI Group Ltd. just weeks before the credit markets collapsed in 2007 was the firm’s largest. It has also been the most difficult as the business has struggled to meet requirements on the 2.5 billion pound-debt that Terra used to fund the 4 billion-pound purchase.

EMI cut 1,500 jobs, or about a third of its workforce, and bands such as the Rolling Stones and Radiohead quit as the company sought to restore profit destroyed by Web sites that let teenagers download songs for free. Since the deal, Terra Firma has written down 90 percent of its 1.5 billion-pound investment, a person close to the matter said previously.

The acquisition also created a schism with Citigroup, the holder of EMI’s debt. Terra Firma sued the New York-based bank over the sale, with Hands charging Citigroup, which advised EMI on the deal while providing Terra with financing, misled him into believing there was a competing bidder. Citigroup has denied wrongdoing.

Move ‘Inconvenient’

That lawsuit forced Hands’s Guernsey move to center stage. Citigroup petitioned to transfer the case, which Terra Firma filed in New York, to England. Hands objected, saying the U.K. would be “inconvenient” and would threaten his non-resident tax status if he is required to return to Britain to testify.

As a U.K. resident, Hands would have to pay the nation’s highest marginal tax rate, which will rise to 50 percent in April from 40 percent on incomes of more than 150,000 pounds, he said. Social security taxes may bring the rate to 64 percent, Hands said in the filing. In addition, he would have to pay an 18 percent tax on his share of the fund’s capital gains.

In Guernsey, an island of 66,000 people, Hands doesn’t pay any capital-gains levy and only a 20 percent income tax; most businesses pay a maximum of 20 percent. It is that kind of tax regime, in a place 35 minutes away from London’s Gatwick Airport, that has attracted companies from private equity firm Resolution Ltd. to mining company African Minerals Ltd., and 120 billion pounds in bank deposits. In the 19th century, the island was the home of French dissidents including Victor Hugo, who fled emperor Napoleon III and finished his masterpiece, Les Miserables, during his 19 years there.

‘Never Visited’

Hands said his move to Guernsey has come at a price.

“Because two of my children are still school age, my wife and they remain at our former family home in Kent when school terms are in session,” he said in his declaration. “I have never visited them there since April 1, 2009. They and my other two adult children visit me at our home in Guernsey.”

“I do not visit the United Kingdom for medical treatment and would not do so except on an emergency basis. I do not visit my parents in the United Kingdom and would not do so except in an emergency.”

Under U.K. tax laws, proving that you left “permanently or indefinitely” may be difficult.

“When you have been resident or ordinarily resident in the U.K. you will have many links to this country, and you might find that some of these links continue after you leave the country and will mean that you remain resident or ordinarily resident here,” the U.K.’s HM Revenue & Customs department says in explanatory documents to the public. Those links may include “family, property, business and social connections.”

A Revenue spokesman declined to comment on Hands’s situation.

‘Stay Away’

Exiles “basically have to do what Guy Hands does: stay away from the U.K.,” even if they have relatives in the country, said Richard Murphy, director of Tax Research Ltd. in Ely, England. Murphy said the advice applies even though the tax administration allows exiles to stay in the country for up to 90 days a year on average.

“I would ask candidates: what if one of your relatives has a serious health issue, would you not come back?” Murphy said. “At that point, they would usually realize how absurd it was, that taxes would have to come higher than relatives.”

Ocean House

Hands lives in Ocean House, which he bought in 2008, near Guernsey’s largest harbor, St. Peter Port. A karaoke fan who counts Amy Winehouse and the Beatles among his favorites, Hands moved all his personal belongings, he said in the court filing.

Meanwhile, his wife, Julia, and their children live in a mansion near Sevenoaks, Kent, that was once owned by Prime Minister Winston Churchill. She runs a chain of country houses called Hand Picked Hotels.

Every Monday morning, Hands has his Terra Firma team fly from London, according to two people close to Hands. Many stay the whole week. He regularly flies to his estate in Tuscany, where he produces olive oil.

In December, asked by the Financial Times about “how important money is” to him, Hands replied:

“Less than love, more than sport.”

And to the question: “How do you want to be remembered?”, he answered: “As a loving husband and a father who lived life with passion.”

To contact the reporter responsible for this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net;

Last Updated: February 17, 2010 19:01 EST