London property – we’ve written here before about the many headwinds it is now dealing with. There are the changes in the buy-to-let market, the changes to non-dom legislation, and the tax charges over houses held in companies (see our comments on the fast rise of the annual tax on enveloped dwellings (ATED) and the new inheritance tax (IHT) charges). But it looks like a new challenge might be about to hit.
When the government first introduced ATED, it assumed that most people would avoid it by moving houses out of company structures and into their own names, as the rest of us do. After all, the thinking went, they put their houses in companies to avoid tax. If that doesn’t work any more, why hang on to the complication?
But it didn’t work out like that. People did hang on to the complication. HMRC raised £100m from the tax in 2012-13 – £80m more than it expected. Why?
It has been suggested that it is all about IHT avoidance. That may be so, and we will soon find out (IHT is now due on houses in companies). But it seems that there may be more to it than even that. It’s all about money laundering.
A few weeks ago, Channel 4 looked the issue of dirty money from Russia pouring into our property market; the Times picked up the story at the weekend. And today, with David Cameron set to make a speech in Singapore promising to act to stop people buying property in London through anonymous shell companies with plundered or laundered cash, the Guardian looks at it as well.
It turns out that one in ten properties in Westminster is owned by an offshore company (the Virgin Islands are a top spot for these firms to be registered). The total value of those owned by offshore companies in England and Wales comes to £120bn (Transparency International has a good graphical rundown of the situation in London).
How much of this is genuinely dirty money? Again, this is something we are soon to find out. There is now no real reason for holding property in an offshore company. Indeed, with ATED and IHT, is it pretty disadvantageous from a tax point of view, so those who stick with the structure will have some reason for doing so that isn’t shared by ordinary people with ordinary financial arrangements.
And at some point even that reason (secrecy) will go.
Cameron is planning a new central public land registry of foreign companies, setting out exactly which land they own, and consulting on ways to list the beneficial owners of that land. There’s a strong chance some of those owners won’t fancy that much – one more reason to think that there might soon be more London properties on the market than usual.