Last week two senior figures of Labour Party raised the problem of a property tax dodge which helped the rich people to escape stamp duty and cost the Treasury of UK tens of millions of pounds a year. The tax gap was mainly used for homes costing more than £5mn, and became common at the top end of London’s overheated property market.
Usually purchasers paying more than £500,000 had to pay 4% top rate stamp duty, but by transferring ownership of a property to a trust or company in one of offshore tax havens they reduce the bill to the 0.5% corporate rate. If property costs £5mn, setting an offshore company or trust cuts the tax rate from £200,000 to only £25,000. However, for most home purchasers high cost of setting up an offshore trust outweighs savings that could be gained by going offshore. The loophole is therefore used by super-rich, and ordinary people are forced to pay the top rate this year.
The latest figures presented by Land Registry show that a total of 827 London homes are sold for between £500,000 and £1mn in February 2007; 207 homes are sold for the sum between £1mn and £2m; 64 are sold for more than £2mn. Recent study by leading property agents shows that of the 300 London homes sold for more than £5mn in 2006, only 118 were registered with the Land Registry. That means that all the rest homes are owned by offshore companies or trusts. For example, in one of the most exclusive London’s addresses, almost 40% of the 83 houses are owned by offshore entities registered in the British Virgin Islands, Channel Islands or Liberia. The same situation is on Kensington Palace Gardens, which is probably the world’s most expensive residential street.
British Virgin Islands is a very popular jurisdiction for registering an offshore tax-avoidance vehicle and transferring property into it. The homes transferred into BVI or similar tax havens no longer have to be recorded at the Land Registry when they change their owner.
The existing stamp duty loophole for wealthy is actually part of earlier discussed problem with enormous sums of taxes hidden in offshore tax havens, including British Virgin Islands. This question was raised up by Revenue & Customs, after they received from the banks personal details of 400,000 customers with offshore accounts.