When Vladimir Putin launched all-out war on Ukraine a year ago, the British government realised that letting Russian oligarchs buy large chunks of west London had been foolish. The long-cherished belief that the civilising air of Eaton Square might turn kleptocrats into democrats was finally – if belatedly – abandoned.
The fruit of the government’s realisation is the new register of overseas owners of UK properties, which ended the anonymity that oligarchs enjoyed by hiding their mansions behind offshore-registered shell companies. The register has had some teething problems, in that 13,000 companies missed the January deadline to reveal their owners, but surely the bigger picture is that this enduring loophole in our transparency rules is finally closed, and the playing field levelled, right? Wrong. A huge loophole still exists, which renders last year’s reform pretty much meaningless, and which almost no politicians have noticed.
Last March’s Economic Crime Act, which created the register, was just the final step in a long journey taken by successive governments to end the advantages of owning property via offshore companies.
That journey began almost a decade ago, with the introduction of the annual tax on enveloped dwellings (ATED), which imposed a special levy on any home held via a company. If your house is worth £20m – and, for an oligarch, that’s pretty pokey – you have to cough up a quarter of a million quid a year for the privilege of owning it offshore. ATED proved, in the words of Boris Johnson when he was foreign secretary, “extremely lucrative for the exchequer”. Then came changes to capital gains tax, inheritance tax and stamp duty, all of which made a shell company less and less attractive.
But it is a fundamental principle of the British justice system that if new regulations affect wealthy people, lawyers will seek ways around them. And so it proved, although it took years for anyone to notice it was happening. In 2021, Anna Powell-Smith, director of a non-partisan thinktank called the Centre for Public Data, became interested in how many offshore-based individuals owned property in the UK. The number of foreign companies – about 95,000 or so in England and Wales – was public by that stage, but we had no idea about offshore-based people.
Powell-Smith has been working for years to reveal who owns the UK and this seemed like an interesting gap in our knowledge, so she submitted a freedom of information request to the Land Registry, and discovered something extraordinary.
While the number of offshore shell companies owning property had remained broadly flat for a decade, the number of overseas individuals had increased by fully 250% over the same period. More than twice as many titles were owned by overseas-based individuals in England and Wales as by offshore companies. And these people were based in exactly the same jurisdictions as the problematic shell companies. By 2021, the single most popular place for foreign-based owners of houses to be based was Hong Kong, whose residents owned 23,584 properties; up from just 2,170 in 2010.
There were also dramatic increases in the number of home-owning residents of Jersey, Singapore, Guernsey, the Isle of Man, the United Arab Emirates and the British Virgin Islands, all of them the kind of places that hosted the shell companies we rightly got concerned about.
And the places where these individuals were buying were the same ones favoured by the shell companies: Westminster has the largest number of titles, with fully 9% of properties in the borough owned by overseas-based individuals, and other parts of London are well-represented on the list too. In recent years, there has also been substantial investment in Liverpool, Manchester and Birmingham.
There are clearly many reasons for such a dramatic increase in the number of foreigners buying chunks of the UK, including the weakness of the pound since the Brexit referendum, which has made our houses relatively cheap for those who earn in a foreign currency. As such, it’s hard to know what are the main drivers of this surge of investment, although the continued attractiveness of UK property does undoubtedly make it clear the government could be charging significantly more tax on these transactions than it currently is.
But one thing is obvious: this is not being driven by a sudden surge in the number of BV Islanders, Manxmen or Jerseywomen buying property here. These supposed property-owners are acting as nominees for someone else; effectively they are offshore shell people doing a job once done by shell companies. And, despite the promises made last year that the government’s new registry would “require anonymous foreign owners of UK property to reveal their real identities”, we the public still have no idea who the actual proprietors of these offshore-owned properties are.
“If the government thinks it’s solved the offshore ownership problem, these figures make clear that it hasn’t. In fact, they show that the problem is far larger than anyone appears to realise,” Powell-Smith told me. “Oligarchs or any criminals could own far more of Britain than we realise but, unless we get to grips with this new loophole, we have absolutely no way of knowing who they are, what they own, and how concerned we should be.”
This is not to say their identity is unknown, however. If an oligarch uses an offshore trustee to own property, he has to tell the Trust Registration Service at His Majesty’s Revenue and Customs. The authorities will therefore know about his ownership; it’s just that ordinary members of the public will not. What concerns me is whether, in the light of revelations such as the Treasury giving a sanctioned oligarch access to his money to sue Eliot Higgins, we can trust our rulers to act in all of our interests when dealing with wealthy investors.
“Calling this offshore ownership a loophole suggests that it is something the government has missed, but I don’t think that’s true. I think they have taken a considered view that if the regulatory authorities know something, that’s good enough for them,” one tax lawyer told me. “The question for you and your readers is whether that’s good enough for you.”
In short, the battle is not won. If we truly want transparency of property ownership, we have to open up trusts, too.
Oliver Bullough is the author of Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back