The taxman could be scooping large sums from frozen Libyan assets while UK terror victims of the former regime receive nothing, MPs have said.

A total of £12 billion is being held in British financial institutions following the collapse of Colonel Muammar Gaddafi’s government.

The dictator’s supply of several shipments of Semtex explosives to the Provisional IRA in the mid-1980s led to a deadly campaign of bombings across the UK.

The Northern Ireland Affairs Committee at Westminster urged British ministers to do more to help victims receive compensation.

Chairman Dr Andrew Murrison said: “My committee is disappointed our Government has been less successful in securing compensation for UK victims of Gaddafi-sponsored IRA Semtex attacks than other governments have been for their nationals.

“We now find that HMRC may have been scooping up big tax receipts from frozen Libyan assets, a small part of which could help victims’ pending reparations being negotiated with the Libyan government.”

Victims of IRA attacks that used Gaddafi-supplied Semtex, like the 1996 Docklands bombing, have not received compensation from Libya.

The committee published a report on the matter.

Who were among the victims of Libyan Semtex?

  • London Docklands bombing (1996) - 2 killed

  • Enniskillen Remembrance Day bombing (1987) - 12 killed

  • Harrods department store blast (1983) - 3 police and 3 civilians killed

The Government has committed to take a more “visibly proactive approach” to securing compensation for the victims of these attacks; however, the MPs argued that “continued inaction” had led to time running out for many victims.

The report recommended ministers:

– Enter into direct negotiations with the Libyan authorities to seek a compensation deal;

– Reveal whether any tax, and if so how much, is collected on frozen Libyan assets;

– Expand the remit of the newly-appointed specialist adviser William Shawcross to ensure an active role in seeking and securing compensation for victims;

– Disclose for what, and to whom, licences to release funds were issued;

– Explain why the Government has chosen not to finance a victims’ reparations fund if tax is being collected.

In 2011 a UN sanction froze Libyan assets around the world to prevent their theft or misuse during the civil war that overthrew Colonel Gaddafi Credit: Ben Birchall/PA

In 2011 a UN sanction froze Libyan assets around the world to prevent their theft or misuse during the civil war that overthrew Colonel Gaddafi.

Cash, property and securities in the UK are now worth £12 billion.

Correspondence between the committee, the Foreign and Commonwealth Office and the Treasury revealed that the assets are not exempt from tax.

The Government was “opaque” in its response to questions on how much tax had been collected, the committee said.

Licences have been issued to make funds from the Libyan assets available.

The committee criticised official refusal to explain for what, and to whom, the licences were issued.

Dr Murrison said: “For victims, the possibility that the Government has been collecting tax on frozen Libyan assets and making funds available to others will make for difficult reading.

“It is essential that the Government adopts a transparent approach by revealing what tax has been collected, and what licences were issued to make funds available.

“If the Government is collecting tax, I would encourage it to use some of the proceeds to finance a compensation fund for victims pending extraction of compensation from the Libyan government.”

Docklands Victims Association President Jonathan Ganesh was badly injured in the bombing.

He said: “The victims of Gaddafi/IRA terrorism continue to be severely let down by successive UK governments as they refuse to make a meaningful stand for their own victims of terror.

“It is immoral of the HM Treasury to apparently take income tax from the billions of Gaddafi’s assets being held in the UK, and despite the desperate need of victims many of whom have taken their own lives and others having to sell their home to pay for care, refuse to allocate a percentage of the tax revenue to the victims.

“I’m sorry but the UK Government should feel ashamed as the US, France and Germany held Gaddafi to account as they truly cared for their victims.”

A Government spokesman said it took this issue extremely seriously and wanted to see a just solution for all victims of Gaddafi-sponsored IRA terrorism.

He added: “In accordance with international law, when assets are frozen, they continue to belong to the sanctioned individual or entity. Sanctions can only be lifted by the EU or UN.”

“We do not comment on individuals’ tax affairs.

“Generally, where taxable income or gains are made in relation to frozen assets, a tax liability will arise, regardless of the assets’ frozen status.”