Following the Panama Papers leak back in April this year, offshore property ownership in London has become a hot topic for discussion.
It is estimated that offshore companies own around £170 billion in UK property. Offshore property ownership is totally legal. However, it is common knowledge that using a shell company to buy property makes it easier for owners to hide taxable assets. This is supported in a recent study by the Department for Business, Innovation and Skills. They claim that a quarter of the solicitors’ firms surveyed had experienced clients attempting to use property related transactions to launder money or commit fraud.
In May, The Guardian found that “secretive offshore companies” own more than 40,000 properties across the capital. This exhibits a 9% increase on the previous year. It is believed that the high property prices and a stable business climate are attractive to overseas investors. However, these high prices also give criminals opportunities to launder considerable sums of money in single transactions.
London’s unaffordable new-build properties provide the perfect conditions for offshore property ownership
An exemplar offshore property ownership case is the 50-storey St. George Wharf tower in Vauxhall where nearly 60pc of the flats are in foreign ownership. The Guardian has revealed that companies registered in offshore tax havens, such as the British Virgin Islands, hold a quarter of the apartments. They go so far as to highlight some of the most questionable owners, including a Russian oligarch in cahoots with Putin’s business partner; the owner of a non-operational Nigerian bank; and a Russian fishing fleet tycoon who bought an entire floor for £13 million.
This particular example exposes some of the deeper corruption issues relating to London’s housing crisis. It sparked outcry among politicians who challenged Prescott and Livingstone on their decision to build such unaffordable residential projects like St George Wharf. That being said, there is a fine line between opening the property market up to international investment, and providing the conditions for dubious offshore property ownership to thrive…
A crack down on tax evasion and money laundering
Are politicians taking tax evasion more seriously in light of the Panama Papers? Following revelations that Cameron himself had profited from offshore assets, he initiated a transparency proposal on foreign ownership of UK property. Since June, any company wishing to buy up UK property has to fill out the Public Register for Beneficial Ownership. This should force offshore companies to reveal their owners, thus making it much harder to conceal corrupt money in UK property. Obviously, the register’s effectiveness is yet to be assessed.
Both Prime Minister Theresa May and Mayor of London Sadiq Khan have pledged to clamp down on money laundering. Whilst the Prime Minister’s focus seems to be more geared towards preventing terrorist financing, it is hoped that the London Mayor’s housing policies will help to reduce the number of unaffordable new-build projects. Khan condemns overseas buyers for using London’s new-build housing as gold bricks and has proposed that 50% of new construction projects in London will be affordable homes available for Londoners first and foremost. Even so, perhaps it is time to consider more extreme policies? Requiring foreign buyers to live in their UK property for a certain amount of days per annum could be a way to kick start the clamp down.
We shall keep an eye on whether the offshore property ownership element of the housing crisis issue improves over the course of Khan’s mayorship.