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Categorized | Property

Puzzle of property in offshore vehicles


Posted on July 31, 2014

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Property ownership through an offshore company evokes an image of a rich foreign buyer wanting to protect their privacy and minimise taxes.

Despite belated UK government attempts to impose taxes on offshore property ownership, the advantages of secrecy, as well as the prestige and convenience of owning prime central London property, make it attractive for the globally wealthy.

One Hyde Park, London’s most expensive block of flats, epitomises how the rich stash their money through offshore companies in luxurious property that can remain empty for much of the year.

Among the most prominent occupants of the sleek glass-and-metal building in Knightsbridge is Rinat Akhmetov, Ukraine’s richest man. His holding company invested £135m in what at the time was the UK’s most expensive flat through a British Virgin Islands company, the Financial Times found in 2011.

    Central London is particularly attractive. An FT analysis of Land Registry data shows that half of the properties in England and Wales held via offshore vehicles are in Greater London, many of them in the prime areas of Westminster, Kensington and Chelsea.

    However, the government’s difficulty in determining who owns property held in offshore vehicles is a source of concern, as money-laundering rules tighten around the world and economic sanctions are put in place against particular individuals and countries.

    The latest country under scrutiny is Russia, with EU countries imposing sanctions on individuals with close ties to President Vladimir Putin.

    The UK government has pushed for greater transparency in corporate ownership, but David Cameron, prime minister, acknowledged that until such information was available in every country, the “cloak of secrecy that is allowing corrupt regimes to stash their money abroad under false identities” would never be lifted.

    Of the 91,248 properties featured in the Land Registry data, some are commercial properties owned by bona fide companies that pour much-needed investment into the UK’s property market and want a tax-efficient vehicle to do so.

    However, campaigners have raised concerns that corrupt government officials and criminals may be hiding funds in expensive property owned through offshore companies.

    Money laundering is a worry for property lawyers and estate agents. Regulations already require them – as well as banks – to verify the identity of their clients, including the beneficial owners of a company involved in the transactions.

    “We consider that our regime for professionals including estate agents is the harshest, most effective in the world,” says Felicity Banks, head of business law at the Institute of Chartered Accountants.

    But experts acknowledge that it can be challenging to identify the beneficial owner. “The directive clearly says you should find out who the beneficial owner is and that is probably the most difficult task that an agent has,” says Peter Bolton King, global residential director at the Royal Institution of Chartered Surveyors.

    The Land Registry data suggest that owning property – both commercial and residential – through offshore jurisdictions remains attractive despite the increase in taxes. Just over 7,000 properties bought in 2011 are owned by offshore companies, compared with just over 10,000 purchased in 2013.

    However, there appears to be a small reduction in the overall number of properties held through offshore companies. A snapshot by the Land Registry in February 2012 – before the latest taxes were introduced – listed 94,760 properties, 3,512 more than in May this year.

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    Methodology for the FT’s analysis

    The FT requested data from the Land Registry on all companies registered outside the UK that owned properties in England and Wales. The data show how many properties bought between the start of 1999 and May 2014 are owned through such companies. It does not show the total number of transactions.

    FT research revealed limitations in the Land Registry data. More than 35 per cent of titles do not list a purchase price and there are suspected duplicates in the data. A deal to buy a property may include several titles. Each title may list the purchase price for the overall deal, rather than a breakdown of the price for each title.

    The FT filtered out potential duplicates by removing price data in cases where the same company bought several titles at the same purchase price on the same date. These duplicates may account for up to £93bn. The sum of all price data in the data set is £236bn, but our conservative estimate of the total involved is £122bn.