Offshore ownership in the UK

Transparency International has a new report out on the extent of secretive offshore ownership of London and UK property – and the consistent appearance of more secretive jurisdictions in investigations of corrupt ownership. Back of the envelope calculations suggest the tax implications could be substantial too…

A few top lines:

  • The scale of offshore ownership is large, covering 40,725 London properties. (Or per the Financial Times last year, at least £122 billion across England & Wales; for Scotland, check Andy Wightman’s blog and book.)
  • Secrecy is a common feature. 89% of these properties (36,342) are held through TIUK 2015 POCU incorp locsecrecy jurisdictions, with more than a third due to the highly secretive British Virgin Islands alone.
  • Secrecy jurisdiction structures account for 5-10% of properties in the richest parts of the city including Westminster and Kensington & Chelsea: see map.
  • To the surprise of nobody, secrecy jurisdictions dominate the ownership of property in the Metropolitan Police’s investigations of corruption too.

The report is well worth a look, and details a lot more of the ways in which secrecy jurisdictions are used to make ownership anonymous, and how that facilitates all sorts of corruption.

Just for fun, I took a couple of the stats and checked to see what the potential capital gains tax (CGT) implications might be – because of course if a property is owned through an anonymous company, you can sell the company rather than the property and potentially skip the tax.

A lot of offshore ownership will be entirely unsullied by any intention to launder the proceeds of crime, or to dodge tax. But to get a sense of scale, it’s still informative to think in terms of the potential CGT at risk.

Example 1: the report notes that in 2011 alone, BVI companies bought £3.8 billion of UK property. Assume that property rose in value according to the government’s average house price index (although we know this is mainly high-end property, so this is likely to be conservative), then the rise in value by 2015 would be around 11.8%. Applying CGT at 28% would yield around £125 million of revenues – from the offshore ownership via one jurisdiction and in one year alone.

Example 2: taking the same approach to the FT’s figure of £122 billion owned offshore in England & Wales last year, we have an average rise in value of around 1.9%, with a potential CGT yield for the year of nearly £2.3 billion.

Of course, in neither case do we expect all CGT to have been unpaid; and the liability would only arise were the property sold. Still – the potential scale suggests TI’s final recommendation might well pay for itself, or indeed do rather better:

The Land Registry should publish the ultimate beneficial ownership of these properties freely to the public, on the same basis as Companies House is set to do under current UK legislation. Accordingly, companies registered overseas would be required to update beneficial ownership information on the same basis as UK registered companies.

And so say all of us.

The inaugural Tax Justice Research Bulletin

January 2015. Over at the Tax Justice Network, we’ve just launched the inaugural Tax Justice Research Bulletin, the first of a monthly series dedicated to tracking the latest developments in policy-relevant research on national and international taxation.

This issue looks at a new paper Henrekson Stenkula 2015 fig3using the longest series of tax data that exist for any one country (challenges to this very welcome!), and an article on property taxation in Africa. The Spotlight section focuses on inequality and redistribution – including an important study from UN-DESA, Joe Stiglitz’s take on Piketty, and answers to that question you’ve been quietly pondering: just how much could you tax the 1%?

It’s a work in progress so any comments on the format, content etc, or suggestions for future research to include, would be most welcome.

 

Property tax potential

Republished from the Tax Justice Research Bulletin – find it all there, with added blues. 

In a new article for the Africa Research Institute, ‘How Property Tax Would Benefit Africa’, Nara Monkam (ATAF) and Mick Moore (ICTD) provide a useful overview of the current state of play, while making the case for a greater role for property tax – not least because of its potential in respect of accountability. Unsurprisingly, the continent contains a ‘spaghetti soup’ of different approaches to property tax, operated by various tiers of government, and with widely varying revenue importance. The ‘soup’ includes specifically land value taxes (LVT), as well as those focused on buildings, and many combinations thereof.Property tax potential

Two complementary avenues for improvement are identified. Investment in administrative capacity, most obviously through (re)building cadastres, digitising ownership records and harmonising with other databases such as utility company records, is vital. (And far from being a low-income country problem only – see for example Andy Wightman’s sweeping work on Scottish land, The Poor Had No Lawyers.) But also necessary is a hefty dose of political will. The authors compare 3 Sierra Leone city councils to illustrate the point:

In Bo, 93% of business owners surveyed in 2012 were able to produce a property tax receipt and 87.5% believed that local elites were successfully prosecuted for non-compliance. In Makeni and Kenema, however, only around 40% were able to produce a receipt, and just 30% were confident of successful prosecution. All three cities had demonstrated rapid revenue gains, but in Makeni and Kenema annual increases stagnated as elites proved resistant to the tax, while the municipal authorities in Bo made further progress due to sustained political will.

Monkam and Moore conclude: “The future of African national and municipal governments will depend on institutions and tax policy that are equitable, improve local service delivery and encourage compliance through establishing a social contract between taxpayers and the state. Property tax is one of the more effective means of realising these goals.”

I tend to agree, though I think we’re still short of definitive evidence for that last statement. In some ways this article highlights the dearth of rigorous research on which to draw – but it’s certainly building, and the case for greater research focus (at least) on property tax is clear. One area of particular caution: there is evidence that property taxes at sub-national levels are often regressive (see e.g. ITEP’s report this month on the US), albeit less than consumption taxes. Issues of political commitment therefore go beyond whether elites comply or not, to whether a progressive design (quite possibly LVT) can be put in place and maintained.