Tax loopholes on homes benefit the rich and cost UK millions

How the wealthy save a fortune by use of offshore trusts

Rob Evans and David Hencke
Saturday May 25, 2002
The Guardian
http://money.guardian.co.uk/tax/story/0,1456,721960,00.html

Rich people are costing Britain millions in lost tax by not registering their houses in their own names, according to land registry records and independent accountants' estimates. The wealthy individuals who appear to be enjoying the country's choicest property virtually tax-free, thanks to their exploitation of legal loopholes include a number of Labour party donors, as well as the former Tory prime minister Margaret Thatcher, an influential Saudi prince and Mohamed Al Fayed, the controversial owner of Harrods and Fulham football club.

Whether they possess luxury penthouses in Mayfair or mansions in the Cotswolds, many of their expensive homes are registered as belonging to offshore trusts with concealed beneficiaries.

A land registry review last year called on the lord chancellor to outlaw such behaviour as an abuse, saying "it flies in the face of the principle [that] ownership ... of all properties should be in the public domain". But Lord Irvine, the lord chancellor, who is responsible for the land registry, has so far not acted.

Specialist accountants told the Guardian such offshore registration was a classic method of escaping some or all of three kinds of heavy tax which ordinary homeowners must pay - inheritance tax, stamp duty and capital gains tax.

The computer tycoon David Potter, for example, owns not only his London house but also Rush Manor, a lavish home counties retreat by the Thames.

His fortune, despite recent collapses in the value of internet enterprises, is calculated at £98m.

We estimate that he may be avoiding liability on Rush Manor for his heirs of inheritance tax of around £600,000; liability of £80,000 in stamp duty on a sale; and capital gains tax on the profit he would make if he sold the mansion, originally purchased in 1989, of at least £160,000.

However, Mr Potter was one of the few rich people willing to speak to us on the subject.

When we asked why Rush Manor was not registered as owned by him but by the Ropanom Nominee Corporation, care of a London address which proved to be that of his Psion company lawyers, Paisners, he told us it was "complicated".

He said he personally paid tens of millions of pounds in taxes. But when we asked if his home ownership was registered offshore to avoid tax, he replied: "No comment".

Mr Potter, a Labour favourite and £90,000 donor who gave a 1999 lecture at Downing Street on wealth creation, also uses a second controversial tax loophole by claiming to be "non-domiciled". He has lived in Britain for more than 30 years, but was born in South Africa. As the Guardian recently revealed in a series by Nick Davies on Hans Rausing, Britain's richest man, many wealthy people can live here virtually tax-free by claiming that their true home lies elsewhere.

In the eyes of the Inland Revenue, they therefore have "non-domicile status". Although Mr Potter will pay tax on his UK income from Psion, he does not need to pay tax on income and assets he keeps abroad.

Land registry records show the same pattern in the case of a number of high-profile recent donors to the Labour party.

We found:

· a Panama company owning the north London house of pharmaceuticals tycoon Tony Tabatznik;

· an offshore company listed as owning the£9m summer palace occupied by Indian steel magnate Lakshmi Mittal;

· an offshore trust holding the Grosvenor Square flat of the drug manufacturer Isaac Kaye;

· a Jersey trust company listed as owning the Hampstead home of businessman Uri David.

Another donor, financier and philanthropist, Christopher Ondaatje, has given £2m to the Labour party. For 17 years his second house has been Glenthorne, a coastal mansion in north Devon.

Yet although he has written lyrically about his feeling of "coming home" from Canada by buying it, the 93-acre estate is in fact in the name of the offshore Exmoor Ltd.

All these men claim non-domicile status. None wanted to comment on the allegation that they are avoiding tax liabilities on their UK homes.

Mr Mittal's spokeswoman said it was "private ... there is nothing illegal". Mr Ondaatje contacted the Labour party press office and then declined to comment. Mr Kaye's spokeswoman said his home was owned by a company "which is owned by a family trust". Mr David's secretary said: "It is private." Neither Mr Tabatznik nor his accountants had anything to say.

The ability to escape ordinary people's property taxes is not confined to Labour supporters.

Lady Thatcher registers ownership of her £3m London house not in the Thatchers' own name, but in the name of an anonymous offshore company.

Her Chester Square home acquired in 1991 is listed as owned by Bakeland Property Ltd on a 64-year lease. We have established that this is a Jersey company.

Its shares are held by two Jersey individuals who are the Thatcher family's financial advisers, Leonard Day and Hugh Thurston. They are acting as nominees for a trust with concealed beneficiaries, accountants say.

The former prime minister's office refuses to explain why she does not apparently own her own house. Leonard Day in Jersey said: "No one's going to tell you about that."

Other Conservative supporters using offshore ownerships include the former Tory MP for Torbay, Rupert Allason.

Recently described by a judge as "one of the most dishonest witnesses" he had ever seen, over his financial affairs, Mr Allason's £1m second home at Aldworth is in a picturesque English village on the edge of the Berkshire downs. It avoids tax, having been owned for the last 22 years by a Panama company, Polarpark Enterprises.

It has now emerged that the company is in turn owned by a trust whose beneficiaries in Bermuda are Mr Allason's children. (His wife was Bermudian and her foreign domicile appears to make this scheme legal). Mr Allason says: "Don't associate me with setting this up for tax purposes just because my ex-wife happens to be Bermudian. I don't know anything about the tax position."

A previous donor to the Conservative party is Wafic Said, a former operator of a kebab restaurant who made millions in commissions on a 1985 British Aerospace arms deal to sell Tornado fighters to the Saudi royal family. He has a £9m apartment in Eaton Square, one of London's most expensive addresses. But builders' cranes also tower over the Cotswolds countryside where he is erecting a Palladian mansion on the site of Tusmore House, a 3,000-acre estate he bought in 1987.

It is not registered as owned by him but by Tusmore Estates SA, an offshore company. Mr Said, too, claims non-domicile status to avoid paying tax on assets held abroad. His spokesman said: "It has been placed in a trust to make the arrangements simple for the family."

Mr Said's chief Saudi patron, Prince Bandar, has an even more palatial Cotswolds mansion a few miles away, together with a large farming estate and the entire village of Glympton. He is an absentee landlord, with the ownership registered offshore, in the name of a Jersey company listed in turn as owned by a bank official and an accountant.

Prince Bandar's estate manager explained that behind this lay a common scheme - a discretionary trust whose beneficiaries were members of the prince's family. He had been advised this would
enable them to keep the property after his death. "Since he is not resident in this country, no liability for tax arises under this structure."

One of the former Conservative government's more lavish supporters was Mohamed Al Fayed. As well as donating £250,000 in the 1980s, he also famously gave Tory MPs Tim Smith and Neil Hamilton cash in brown envelopes.

But his Surrey mansion, Barrow Green Court, and his Scottish castle at Balnagown, are not owned by him. They are registered to Bocardo, a company in the tax haven of Liechtenstein whose shares are believed to be held in turn at Banque Gonet in Switzerland and controlled by Mr Fayed and his two brothers.

His spokesman, Chester Stern, said it was "fairly common" for the ownership of homes to be put in the name of a company. "It is entirely legal. There are a number of reasons for doing it, not
necessarily to do with tax."

But when asked if Mr Fayed had done it for reasons other than tax, Mr Stern refused to comment."I am not prepared to discuss the reasons ... It is a confidential matter."

Giving rich people with foreign assets special tax breaks is sometimes defended as being of benefit to Britain. But one former economic adviser to Jersey and an expert on offshore tax havens,
John Christensen, told us: "Judging from my experience of dealing with individuals who engage in extensive tax avoidance exercises, the argument that to try to enforce UK tax measures on them will
lead to their withdrawing investments does not hold water."

Last June, the land registry published a report by Andrew Edwards, an expert on offshore tax havens, who called for the concealment loophole to be blocked.

He said compulsory truthful declarations of beneficial ownership of houses would "be invaluable for law enforcement, regulatory and tax authorities".