How Scotland’s landowners avoid paying at least £72m in tax
Torcuil Crichton and Andy Wightman,
Sunday Herald, 5th October 2003
Two days after the September 11 attacks on America, a retired British civil
servant stood up at a discreet symposium in Cambridge and delivered a stark
warning:
Britain’s secret system of land ownership is open to
corruption, money laundering, tax avoidance and "economic crime which is a
threat to civilisation"
Andrew Edwards, a former deputy secretary to the Treasury and an expert on
how the wheels of government and finance work, highlighted a major legal
loophole for the Inland Revenue;
namely that because the British government has no accurate record of who owns what land in the UK, it can’t
determine who should be paying taxes and how much.
Land ownership is kept secret in Britain because of the outdated system of
"beneficial ownership", which means registered owners of land and property
are under no obligation to enter their true names. Quite simply this means land
in Britain can be bought and sold without anyone, especially the Inland Revenue,
ever knowing who the real purchaser is.
Edwards had spelled out his concerns earlier in a
2001 Review he conducted
into the Land Registry, the government body that guarantees ownership to
registered estates and interests in land for the whole of England and Wales.
He wrote:
"In these days when economic crime and money laundering have
become major issues for the world economy and society, and when property assets
are a significant vehicle for holding the proceeds of crime, the fact that the
Land Registry neither records on the register or knows who the true owners of
property are is becoming harder to defend."
This means foreign registered companies based in tax havens can buy and sell
land and buildings in Britain without contributing a penny to the British
tax-purse, while at the same time receiving taxpayers’ cash when they apply for
grants and public subsidies for housing improvements, business ventures,
forestry, agricultural and environmental schemes without even identifying who
they really are.
Although Edwards pointed out that the current system is concealing
significant criminal activity, it is mostly being used to the advantage of an
elite group of wealthy, law-abiding people who are so rich that they can choose
how much tax to pay and to whom.
An investigation by the
Sunday Herald and the
Who Owns Scotland project, the
independent land research organisation in Edinburgh, has found that the UK
Treasury is losing hundreds of millions of pounds a year in Scotland alone
because millions of acres of land are held in offshore trusts or nominee
companies that hide the true identity of the owners.
We have not mapped the entire country and we have not included urban areas.
But, despite the difficulty in getting exact details, we have established that
at least 1.1 million acres of the Scottish countryside is owned by offshore
companies or nominee companies that can avoid tax payments to the Treasury.
Offshore companies are registered in so-called
tax havens in "low" or
"no tax" jurisdictions in places such as the Cayman Islands and the Dutch
Antilles. Not only do these countries charge virtually no tax to companies, they
also guarantee the anonymity of ownership. Like Swiss bank accounts, there is no
way of finding out the true ownership of a company registered in an offshore tax
haven.
For land owned by nominee companies, used by large estates such as
Buccleuch
estate, the system is often used to hide true ownership. In the case of the Buccleuch estate, the largest private land holding in Scotland, 99.7 percent of
the shares are owned by
Anderson Strathern Nominees Ltd, itself a company with a
total of four £1 shares owned by four Edinburgh lawyers which has not traded
since incorporation in 1992.
In addition, a further 2.5 million acres, or 13.1 percent of Scotland’s
19,068,631 acres, is owned by private trusts. Such trusts allow landowners to
avoid by entirely legal means the inheritance tax, stamp duty and capital gains
tax that ordinary householders must pay when selling their assets.
Without taking into account urban Scotland, the booming property market, and
the rest of the UK, we estimate that at least £72 million a year is lost on
average to the Treasury in foregone tax through the offshore ownership of rural
Scotland. The true figure would be much more if it were possible to survey all
of Scotland. For the whole of the UK, the figure almost certainly amounts to
billions of pounds of lost revenue.
On the basis of research by
Who Owns Scotland, offshore companies and trusts
are estimated to avoid an annual tax liability of £2m, but that is purely on
capital taxes and sales. Tax foregone as a consequence of accountancy practices
that move money in and out of the UK in the guise of labyrinthine land, loans
and share transactions between parent and UK companies is likely to be upwards
of £20 million a year.
The most modest estimates of inheritance tax revenue lost through private
trusts reveal a total liability to inheritance tax of £1 billion, resulting in
an annual capital loss of around £40 million and further £10 million in lost
capital taxes.
Remarkably, while one small, independent research programme can make accurate
estimates of lost tax, the arm of government charged with collecting tax, the
Inland Revenue, is at a loss itself when it comes to monitoring the activities
of Scotland’s secret landowners.
A number of the Inland Revenue’s officials have copied some of the
methodology and even the name of Who Owns Scotland project. In the course of
defending themselves against a judicial review brought by the al-Fayed brothers,
led by Mohamed al-Fayed, the owner of Harrods store in London and a 32,000 acre
Highland estate, in Edinburgh in 2002, court papers revealed that the Inland
Revenue’s special compliance unit in Edinburgh had set up a project to examine
landholdings in Scotland owned by offshore companies.
It is understood that the officials from Inland Revenue’s Who Owns Scotland
team were concentrating on establishing whether offshore companies were using
Scottish land holdings and estates to move millions of pounds in and out of the
country without paying tax. When money is held offshore in a tax haven there is
no liability, but the moment it comes into the UK it can and should be taxed.
The problem facing Inland Revenue is the sheer volume of cash that flows in
and out of the UK via complex networks of companies and trusts. We have
uncovered companies owning Highland estates based in places such as the Bahamas,
the Cayman Islands, Panama, as well as in tax havens still blacklisted by the
Organisation for Economic Co-operation and Development (OECD) including
Liechtenstein, Andorra and Liberia.
The secret nature of land ownership is also a useful way to "lose"
money or put it beyond the reach of the authorities. Take the mysterious case of
Dame Shirley Porter and several hundred acres of Sitka spruce in the Highlands.
In December 2001, the House of Lords ordered Dame Shirley Porter, the
disgraced former leader of Westminster City Council, to pay £27 million in
surcharges to the London local authority as a result of a "votes for homes"
scam she was found guilty of. The council obtained a court order seizing her
assets worldwide. But Dame Shirley claimed she only had assets worth £300,000,
which came as something of a surprise given that she was the daughter of Jack
Cohen, the founder of the Tesco supermarket chain. In 1991 her share portfolio
recorded that she owned £5 million in Tesco shares, and more recently, at the
time The Sunday Times Rich List was published, claimed she was worth
about £70 million.
So what happened to her "disappeared" millions? We may have found some
of it. At one time Dame Shirley owned substantial land holdings in Scotland,
three lots of land purchased as part of the tax-driven forestry scandal of the
early 1980s. In one week in June 1988, all three holdings were sold to Oakum
Association Ltd for a total of £620,000.
Oakum Association Ltd is a company registered in the British Virgin Islands
with a box office address in Geneva, Switzerland. No one knows whether that is a
company owned by Dame Shirley or members of her family or whether it is another
anonymous land speculator.
The plots were sold by Oakum Association Ltd in January, February and June
2002 to a variety of buyers. There is, of course, nothing to link Oakum to Dame
Shirley Porter. We will never know whether the Sitka spruce was sold or simply
transferred to disguise true ownership until the time came for disposal.
A BBC investigation earlier this year also linked Dame Shirley to Whitecoat
Investments Ltd and the Sunset Trading Company, both registered in the tax haven
of the British Virgin Islands.
Unable to trace her wealth, Westminster Council have so far only managed to
recover £7,000 of the £27 million owed to it by Dame Shirley, and don’t think
going down blind financial alleys in the British Virgin Islands is a priority
for the council.
Back in Scotland, secret land ownership is not on the radar for the Scottish
Executive, and the work of establishing who actually owns large parts of
Scotland has barely begun. With the passing of the Land Reform Act, which gave
communities the opportunity to buy land when it came on the market, many in the
Scottish Parliament felt their work was done.
In the first flourish of enthusiasm for land reform that accompanied
devolution, the Scottish Office, as it then was, established the Land Reform
Policy Group to map out progress on the issue.
Post devolution, the Eleventh Progress Report on Land Reform, on 5th
November 2001, concluded that there was no need to improve information on the
ownership of land in Scotland. The study –
Ownership of Land Holdings in
Rural Scotland - concluded that raising awareness of existing information
provision would be more useful than developing a new system, and the demand for
information on beneficial ownership, the euphemism for secret offshore ownership
and nominee companies, had no clear rationale.
Instead it decided to publish a booklet –
Sources of Land Ownership
Information in Scotland – to publicise existing sources so that those
searching for information will be able to find out where it is likely to be
held.
Anonymous ownership is also no bar to claiming public funding. Lord Sewel,
when he was agriculture minister at the old Scottish Office, asked the Forestry
Commission to review its policy of giving grant support to companies that did
not reveal their true owners.
The Forestry Commission awaited the outcome of the Land Reform Policy Group,
which concluded that it was not necessary to reveal the ownership of land. So
while applicants for the new Scottish Forestry Grants Scheme are required to
sign a declaration agreeing that details within the application and contract may
be place in the public domain, there is no obligation to name the ultimate
beneficiaries whose offshore bank accounts will be capitalised with the public
money.
While the flow of public money to offshore accounts in places such as the
Cayman Islands and even Liberia continues apace, Andrew Edward’s Land Registry
Report highlighting massive tax evasion lies gathering dust on the shelves of
the renamed Ministry of Constitutional Affairs, rotting slowly like the secret
system of land ownership it condemns. In government departments from Whitehall
to the Scottish Executive, the meter is running on the millions of pounds lost
every year while there is no action taken against the scandalous and entirely
legal system of land ownership in Britain.
© Sunday Herald 2003 www.sundayherald.com
Further Information
The Who Owns Scotland website can be visited at
www.whoownsscotland.org.uk
Information on The History of Tax Havens can found on the
following investment company websites:
www.finor.com/en/tax_havens_history.htm
www.offshoresimple.com/tax_havens_history.htm
For research, information and updates on campaigns focussed on tax havens and
offshore finance centres visit:
Tax Justice Network
www.taxjustice.net
Association for Accountancy & Business Affairs
http://visar.csustan.edu/aaba/home.htm
