Stamp duty dodge to be stamped out

I co-wrote this article about Government plans to close a tax loophole which allows stamp duty to be avoided on multi-million pound properties, by buying and selling them via an overseas company.

This way, it is only the shares in the overseas company that change hands when the house is sold on, a transaction which attracts very little tax in territories like Panama or the BVI.

Legal note: both the Mittal and Goldsmith families said that stamp duty was paid when the properties mentioned in the article (all held through overseas companies) were purchased.

Full text is on the Sunday Times website here, or after the fold.

Super-rich lose stamp duty dodge

The Treasury looks to stop the super-rich avoiding hundreds of thousands of pounds in stamp duty ahead of next month’s planned increase

Marie Woolf and Cal Flyn
The Sunday Times, 6 March 2011

The Treasury wants to close a loophole that would allow the super-rich, including Saif Gadaffi, son of the Libyan dictator, and Lakshmi Mittal, Europe’s richest man, to escape paying hundreds of thousands of pounds in stamp duty on their homes.

It involves registering homes in the names of companies rather than people, though those involved may have other reasons for choosing company ownership.

Bob Geldof, the Live Aid organiser, and Zac Goldsmith, the Tory MP who prides himself on his green credentials, are among those who have followed this route.

In future when they want to move they could sell the shares in the company rather than the property itself. The company shares attract 0.5% in stamp duty rather than the 5% levy to be imposed next month on houses costing more than £1m, sold the traditional way.

Under the loophole a house worth £20m attracts a stamp duty bill of £100,000 for the next owner rather than £1m. It means the current owner can offer it for a lower price or share the saving with the purchaser.

The tax authorities believe the avoidance scheme is already being used on many expensive homes and costs £40m a year in lost revenue. Treasury officials fear the practice will increase when stamp duty rises next month.

Owners set up a company, often in a tax haven such as the British Virgin Islands or Panama, though it does not have to be offshore, to buy a property.

The company buys the home in its name, initially paying the full stamp duty. But when the owner decides to sell the property, he sells shares in the company rather than the property itself.

The Candy Brothers, whose development at One Hyde Park in London includes flats priced from £6.5m to £140m, are reported to have written to potential buyers explaining the benefits of “offshore vehicles”.

Saif Gadaffi is among those who have properties held in offshore companies. He bought a £10m home in Hampstead, west London, in the name of a company registered in the British Virgin Islands.

Mittal lives in a mansion near Kensington Palace, west London, which has a jewelinlaid swimming pool and parking for 20 cars, and is decorated with marble from the same quarry as the Taj Mahal. The property has been owned by Laken Properties since June 2004, when it was bought for £57.1m.

Mittal also has a second property in Bishops Avenue, Hampstead, known as The Summer Palace. It was purchased by a company called Spalace in 2002. Both Laken Properties and Spalace are dormant British companies. The Mittal family declined to comment but it is understood stamp duty was paid when the properties were bought.

A British Virgin Islandsregistered company called Quiet Ventures owns the apartment where Geldof is registered as living in Battersea, southwest London. It has owned the property since 1998.

The family home at Davington Priory, near Faversham, Kent, has been in the possession of a second company, Bandol Holdings, since 1990. Geldof’s accountant did not return calls. It is believed he has paid stamp duty on all his properties.

Zac Goldsmith, the Conservative MP for Richmond Park, was registered on the latest electoral roll as living at a house in his Richmond constituency in west London. Goldsmith is worth an estimated £200m and gave up his non-dom status before entering parliament. The house was bought for £835,000 by a company called Ormeley Holdings, incorporated in the Cayman Islands, in October 2008.

Goldsmith’s constituency house neighbours Ormeley Lodge, the home of his mother Annabel. Ormeley Lodge is also owned by the holding company. A spokesman for Goldsmith said he had paid stamp duty on all his properties in the usual way. A Treasury source said: “We are trying to find ways to address this. We are worried the number of people who use this will rise when duty goes from 4% to 5%.”

The Liberal Democrats are pressing for a crackdown. They also want foreigners to pay capital gains tax on properties they sell. Lord Oakeshott, a Lib Dem peer, said: “If the Gadaffis want to hide their Mayfair mansions behind a brass plate in a tax haven we should tax the property’s capital value every year. It’s time we took the dark glasses off these shady owners of our prime properties.”

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