When the UK government introduced a “special annual tax on homes owned by non-natural persons” it was expected those buying property via offshore companies would register properties in their own name to avoid the new tax. It seems that the UK government thought wrong with many wealthy foreigners now choosing to pay £218,200 year in tax in order to remain private. It is believed there are 200 wealthy foreign investors owning an array of £20 million plus properties across London who would rather pay the tax than reveal their identities.
Before we look at this situation in more detail let us remember that owning a property via an offshore company is perfectly legal. There is also an array of money-laundering regulations in place today which ensure that when purchasers and sales go through all parties must be verified and identified. The fact that the Metropolitan police have over the last decade investigated offshore companies owning property in Britain worth in excess of £180 million is concerning but we don’t know how many of these investigations revealed corruption or money-laundering.
Even though there have been allegations of money-laundering via London property investments the authorities have been fairly unsuccessful in attempted prosecutions. The idea of introducing a special tax where properties are owned by “non-natural persons” was a potential answer to the problem but it has not worked.
Offshore holding companies
While the idea of pushing owners towards identifying themselves as opposed to maintaining cover under an overseas company has led to a fall of 5% in the number of “non-natural person” vehicles used in property ownership, this is neither here nor there. When the tax was introduced back in 2013/14 it raised an additional £25 million on properties valued in excess of £20 million although the figure for the last financial year had increased to £44 million.
There have been some enormous property transactions over the last decade right across the London luxury property market. We regularly see £20 million plus properties changing hands via offshore companies where the underlying owners are “known by the market” but not officially confirmed. There are very legitimate reasons for holding property investments in offshore companies and it is unfair to suggest that this particular strategy is in any way immoral or illegal. However, those looking to protect their privacy will see the cost increase to £220,350 in April 2017 from an initial £140,000 back in April 2013.
The fight goes on
While this particular strategy has been relatively unsuccessful in flushing out the underlying owners of various properties across London, held via offshore companies, there have been successes in other areas. Governments around the world are now communicating on a more regular basis to flush out money-laundering and so-called “dirty money” with suggestions that London property valued in the billions of pounds may have been acquired over the years with such funding.
It is unfortunate that the vast majority of people making legal use of offshore companies are being painted with the same brush as those using corrupt funds. To make it clear, it is not illegal to use an offshore company to acquire any type of asset although it can make identifying the underlying owner more difficult.