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Shamed UKIP leader Nigel Farage faced outrage yesterday after his offshore tax wheeze was exposed by the Mirror.

Mr Farage opened a trust fund in the Isle of Man in a plan to slash his tax bill, our investigation revealed.

The explosive revelations have robbed the rabble-rousing MEP of his “man of the people” image, MPs said - finally “bursting his bubble” after years of soaring popularity in the polls.

His offshore fund was exposed just hours after the party suffered a humiliating by-election wipeout in Scotland, piling fresh misery on the UKIP leader.

Labour MP John Spellar said: “I know Nigel Farage wants to appeal to disaffected Tories, but copying some of the Tories’ biggest donors by setting up offshore trusts to avoid tax is taking things too far.

“It’s typical of UKIP - they talk about how much they love this country but don’t want to pay taxes here – it’s just hypocritical.”

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Fellow MP John Mann added: “This is a man who says he’s more English than the rest of us, when in fact he has been taking money off the EU while setting up an off-shore trust.

“His bubble has well and truly burst. It’s absolute hypocrisy funded by the European taxpayer.”

On Twitter Labour MP Ian Austin asked whether news of an “off-shore, tax-avoiding trust dents city trader Phony Farage’s ‘man of the people’ pretence?”

Even David Cameron was dragged into the scandal - fending off questions over his Cabinet Minister’s tax affairs.

Asked whether anyone in the Government sitting around the Cabinet table held trust funds offshore, the Prime Minister’s spokesman said: “There are rules about interests and they should be followed.”

He added: “Mr Farage’s tax affairs are a matter for him.”

Mr Farage told the Mirror he did not benefit from the Farage Family Educational Trust 1654.

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.

(Image: John Alevroyiannis)

Farage Limited’s accountant Spencer Watson told the Mirror that all £969,000 in dividends were paid to Andrew.

Mr Farage said: “My financial advisers recommended I did it, to have a trust really for inheritance purposes and I took the advice and I set it up.

“It was a mistake. I was a completely unsuitable person for it. I am not blaming them it was my fault.

“It’s a vehicle that you chuck things in through your life that you don’t need and you build up a trust fund for your children or grandchildren.

“It was called an educational trust and could have been used for grandchildren’s schools fees, things like that.

“It was a mistake for three reasons. Firstly, I’m not rich enough to need one and I am never going to be.

“Secondly, frankly, the world has changed. Things that we thought were absolutely fair practice 10 years, 20 years ago, 30 years ago aren’t any more.

“Thirdly, it was a mistake because it cost me money. I sent a cheque off to set it up.”

Mr Farage last night claimed he “felt uncomfortable” about the fund but insisted he did not avoid tax.

He told the BBC he wanted to cut his family’s inheritance tax bills but realised he had made an “error”.

And he admitted such funds were no longer appropriate for politicians.

He added: “I don’t think you can be in public life and have a family trust.

"The public do expect very, very high standards. I should not have bought the policy. It was an error.”

Timeline

1999 Nigel Farage elected to European Parliament

February 2003 Farage, his brother Andrew Farage and a third director set up commodity trading firm Farage Limited.

August 2003 A document filed at Companies House stated that Nigel Farage owned no shares in Farage Limited and the Farage Family Educational Trust 1654 owned 33 shares.

May 2004 Another document filed at Companies House stated that Nigel Farage owned 33 shares in Farage Limited and the Farage Family Educational Trust owned none.

October 2004 Farage was appointed company secretary of Farage Limited.

February 2006 Farage resigned as director of Farage Limited but remained as company secretary.

September 2006 Nigel Farage became leader of UKIP.

November 2009 Nigel Farage stood down as UKIP leader.

November 2010 Farage was re-elected leader of UKIP.

May 2010 Farage failed to win a seat at Westminster in the general election.

February 2011 Nigel Farage resigned as company secretary of Farage Limited.

March 2011 HM Revenue & Customs filed a petition at the High Court to wind up Farage Limited.

July 2011 Farage Limited went into a “voluntary arrangement” to pay off its debts by 2017.