Mr Knight, executive chairman of News International, holds pounds 28m of shares in its parent company, News Corporation, in a Jersey offshore trust.
The principal and legitimate purpose of such trusts is generally to defer, and possibly avoid, paying capital gains tax on profits. In the case of Mr Knight, his potential profit on share deals in the past two years amounts to millions of pounds.
Mr Knight's duties at News International, the UK arm of Rupert Murdoch's international media group, also include running the Sun. The tabloid has been a leading voice in the campaign to get the Queen to pay tax.
Mr Knight's Jersey trust paid pounds 11.93m for nearly 2 million News Corp shares and is showing a profit of nearly pounds 16m on the holding.
If Mr Knight were holding the shares directly, and sold them tomorrow, he would be subject to an immediate tax bill of close to pounds 6m - based on capital gains tax at 40 per cent, less an allowance for inflation.
But the trust can defer the tax bill indefinitely until it chooses to remit the money to Mr Knight or members of his family in the UK. If Mr Knight, who holds both a UK and a New Zealand passport, were to move abroad, he could sell his shares and take his part of the enormous proceeds away with him, free from UK capital gains tax.
A spokeswoman for News International said that 'Mr Knight has no intention of retiring or living overseas' and the trust is a 'means of providing for Mr Knight's family'.
At one time, the same Jersey trust owned 3.3 million shares in the Telegraph group, where Mr Knight worked from 1986 to 1989. He quit the newspaper group and shortly afterwards joined the Murdoch empire. During 1991 and 1992, the trust sold its holding to Hollinger, the quoted Canadian group of Telegraph owner Conrad black.
But this earlier arrangement apparently yielded little or no offshore tax benefits. Mr Knight had acquired the 3.3 million shares, plus 2.3 million he held in his own name, by way of an option arrangement and paid full tax on the deal before he transferred the shares to the trust in July 1989.
'When the trust sold its shares, virtually the whole gain had already been fully taxed in Mr Knight's hands and so any further gain was negligible,' said the News International spokeswoman.
Mr Knight's Jersey trust is the 17th largest shareholder in the Murdoch media empire, including huge institutions which own shares. In effect, this makes Mr Knight one of the largest individual holders after the Murdoch family interests.
The estimated pounds 28m held by the trust is not the full extent of the Knight fortune, which has grown astonishingly in the eight years since he was the pounds 75,000- a-year editor of the Economist.
On top of the Telegraph shares sold by the Jersey trust, the man who must be Britain's richest hired hand sold a further 3.4 million Telegraph shares that he held directly in his own name. In total, he and the trust realised nearly pounds 21m from Telegraph share sales, for a profit of pounds 14.4m before tax. Most of that seems to have gone into financing the purchase of the News Corp shareholding.
But the deal Mr Knight cut with Mr Murdoch on joining News Corp earned him many millions on top. He received a package of 'benefits' worth Adollars 18.6m ( pounds 9m at current exchange rates), payable over three years. The final chunk is payable this September, and again seems likely to flow partly to the Jersey trust, because the money goes to Mr Knight or 'entities in which he is deemed to have a relevant interest'.
Mr Knight also earns his regular salary. Last year, his job as executive chairman of News International paid him pounds 235,000.
A spokeswoman for News International said: 'The Jersey trust is in rigorous accordance with all legislation governing such family trusts.' In a later statement relating to tax, she added: 'This kind of deferment is specifically allowed by successive governments.'
In fact, the Sunday Times Insight article, published when Mr Knight had been at News International for six months, helped to close the loophole. In the March 1991 Budget, the Government put in place measures that have effectively taken away many of the tax benefits of putting assets in new offshore trusts. But trust arrangements like those set up by Mr Knight before 1991 were left largely untouched.
(Photograph omitted)Reuse content