Media playback is unsupported on your device Media caption Nigel Farage: "There was no intention to avoid or evade tax on my part"

UK Independence Party leader Nigel Farage said he "felt uncomfortable" about setting up a trust fund in the Isle of Man but insisted he did not avoid or evade tax.

The MEP told the BBC that he opened the fund in 2003 to reduce his family's inheritance tax bills but quickly realised that he had made an "error".

Such funds were no longer appropriate for politicians, he suggested.

The Conservatives said that Mr Farage had "questions to answer".

Tax avoidance is not illegal but a crackdown is under way on the practice.

Mr Farage told the BBC he had set up the Farage Family Education Trust 1654 in the Isle of Man in 2003, with the intention of limiting the amount of inheritance tax that his children would have to pay upon his death.

'High standards'

He said this was something that tens of thousands of other people have done due to the unfairness of inheritance tax.

However, he said he soon began to feel "a bit uncomfortable" about setting up the fund and wound it up "many years ago" without "choosing to use the vehicle for anything".

He says tax avoiders are the 'common enemy', but apparently he has been putting money into a tax haven himself. The Conservatives

"I should not have bought the policy...It was an error," he told the BBC, adding that he was a politician who was always prepared to hold his hands up when he had made a mistake.

"There was never an intention to avoid or evade tax on my part in any way at all," he added, saying he had, in fact, lost money as a result of the arrangement.

The UKIP leader said the secrecy surrounding family trusts meant they were not suitable for politicians, although he suggested that senior Conservative and Labour figures still used them to hold assets.

"I don't think you can be in public life and have a family trust. The public do expect very, very high standards."

'Too far'

Mr Farage worked as a commodities broker before entering politics in the 1990s and becoming an MEP in 1999.

The Mirror said Companies House documents indicated that the fund was a shareholder in Farage Ltd - a financial firm owned by his brother Andrew in which the UKIP leader also once had a stake - until 2011.

The MEP insists he never received any dividends from the firm, which had been paid solely to his brother, and had transferred his shareholding in the company to the trust fund.

Andrew Farage told the newspaper that he had paid tax on all the dividends in question in the UK.

A Conservative Party spokesman said "Nigel Farage is a politician who says one thing, but then does another".

"He says tax avoiders are the 'common enemy', but apparently he has been putting money into a tax haven himself. Nigel Farage clearly has some questions to answer."

Labour also criticised the MEP's actions.

"I know Nigel Farage wants to appeal to disaffected Tories, but copying some of the Tories' biggest donors by using offshore trusts to avoid tax is taking things too far," MP John Spellar said.

The Isle of Man was one of the UK's crown dependencies which signed an agreement on corporate disclosure at a recent meeting with David Cameron amid claims that individuals and firms are using offshore locations to reduce their tax liabilities.

The Isle of Man and other dependencies reject suggestions they are used for the purpose.