Could Paradise Papers impact luxury real estate markets?

The release of 13.4 million files, nicknamed the “Paradise Papers“, which were “acquired” after a hack on law firm Appleby have yet again placed great focus on the use of overseas tax havens to acquire real estate. Appleby has offices in the Isle of Man, Bermuda and a number of other so-called tax havens and regularly deals with the “super rich” and major global companies. Aside from the fact the hack is extremely embarrassing for the law firm it has cast a great shadow over the use of overseas companies and tax havens to acquire real estate in London and other parts of the world.

The Who’s Who of worldwide wealth

We have Lord Ashcroft Donald to Trump advisers, a significant shareholder in Arsenal football club to the chief fundraiser and senior adviser to the Canadian prime minister. The Queen has even been mentioned as making use of overseas tax havens to minimise her tax liabilities and maximise her returns from the Duchy of Lancaster’s investment portfolio. The subject of using overseas companies to acquire real estate is something we covered just recently amid concerns that billions of pounds in tax revenues are being avoided using perfectly legal means but ones which are perhaps morally questionable?

We now know of a major investor in both Twitter and Facebook with financial links to the Russian government, the fact the Queen’s private estate used an LP investment tool in the Cayman Islands to indirectly invest in BrightHouse. This particular company has been heavily criticised because of its targeting of low income families looking at “rent to own” funding for an array of regular day-to-day equipment. Indeed the company has been forced to apologise for a lack of internal control which led to the miscalculation of interest payments although customers have ultimately been compensated.

London property market

The 13.4 million files are now effectively in the public domain and many real estate investors across London and other luxury property markets will be waiting nervously for their names to be mentioned among the mountain of “Paradise Papers”. It could take some while to go through the massive array of highly confidential financial data in order to link offshore companies with onshore companies and individual investors.

The UK government has tightened the regulations regarding personal ownership of luxury property in London and the non-domicile arrangement of years gone by which effectively allowed individuals to avoid capital gains tax on their investments. However, many have simply converted their residential property into “commercial assets” and wrapped them in offshore companies which often fall outside of the remit of the UK tax office.

Tax havens, Paradise Papers and more leaks to come

If we look at this situation from a purely legal point of view the idea of using offshore companies to invest in assets and businesses around the world is perfectly legitimate. As we have seen in years gone by, it is up to governments around the world to work together to “update tax laws” and ensure that there are fewer and fewer places to hide for those intent on minimising their tax liabilities – by whatever means possible. Whether we will see the disposal of any luxury properties in London as a consequence of the “Paradise Papers” remains to be seen but it will certainly put some unwelcome focus on those fully utilising offshore companies and offshore tax havens to reduce their tax bills.

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