This comes from the excellent David Conn in the Guardian today from a long feature he has written on Tottenham Hotspur's plans to redevelop White Hart Lane in North London:
The council "masterplan", which proposes wholesale flattening of property behind Tottenham High Road West, to be replaced by the walkway, 1,650 new flats and houses, shops, cafes, a library and promised cinema, has been met with utter dismay from business people whose premises would be knocked down.
Spurs stand to profit from the residential development because of the property they have bought in that area in recent years, including the Carbery enterprise park and some 20 shops and flats.
On 27 March, just before the council made the "masterplan" public, for consultation with local residents in April, Tottenham transferred all their property in the High Road West area to TH Property Ltd, a company registered in the Bahamas. That is the Caribbean tax haven home of Joe Lewis, the billionaire currency trader who owns a majority of Spurs via his holding company, Enic International, also registered in the Bahamas. Levy is, with his family, a potential beneficiary of a trust that owns 29% of Enic International in the Bahamas. Levy's salary, £2.2m in 2011-12, is paid by Enic International, which is then repaid by Spurs.
Richard Murphy, the anti-tax avoidance campaigner of Tax Research UK, said this arrangement gives clear potential for corporation tax to be avoided. He said: "It depends on the precise arrangements, but if property here is owned by an offshore company, there is no corporation tax on the gain when the property is sold."
A Spurs spokeswoman confirmed that TH Property Ltd is owned by Enic International, but said the transfer of the properties in Tottenham to a Bahamas-registered company was not to avoid paying UK tax on any profit made when the property is sold, potentially with residential development value.
"The transfer was to clear debts out of our UK companies which had bought the properties, so the club itself is not carrying the debts," she said. "That will help with the bank financing required for the new stadium. Both this and the club are UK operating organisations and UK tax will be paid on all UK transactions."
It is of course possible for a company not registered as resident for tax in the UK to pay tax on rental income it earns in this country. But there are a number of ways it can avoid tax on capital gains. It's hard to explain the use of a Bahamas registered company without thinking there must have been a tax motive for its use.
My wish is a simple one and is that football put the community that supports it at the heart of its concern. It's not at all clear Spurs is doing that. Making sure you operate transparently and will pay all the tax that is likely to be due on the profits you earn is an excellent way of making that commitment clear. The Spurs structure is not clear indication that will happen.
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“Tottenham transferred all their property in the High Road West area to TH Property Ltd, a company registered in the Bahamas”
That transfer would have incurred SDLT at up to 5% on the transfer which would be viewed for tax purposes at arms length.
So actually, as it stands today, they have paid MORE tax than if they had left the properties in the club…………
Who cares where they are registered, the right question is whether they are uk tax resident surely?
But one has a bearing on the other
If this is a development, as opposed to an investment, then the gain would be a trading gain rather than a capital gain and so would be subject to either corporation tax or income tax, depending on whether or not a permanent establishment is created by the Bahamas company. There is no favourable double tax treaty between the Bahamas and the UK, so that wouldn’t help it either. Looks to me like a minimum of 20% income tax would be payable on the trading gain or, if corporation tax applies, the rate of 21% or 22% depending on the rate in the tax year in which the trading gain is made.
Very hard to see any tax leakage here. Why use a Bahamas company? Because its where the owner resides. Seems perfectly reasonable to me.
Where the tax planning gets complicated is if the site is retained as an investment. At a point in time, the site would then move from “trading stock” to a fixed asset. Thereafter, any subsequent gain would be subject to CGT, but at the point it ceases to be trading stick, UK tax would be payable on the uplift in value.
The company is not registered in the UK with the Registrar of Companies
It would appear that it does not think it is trading here as a result
Richard, I confess it’s not clear you understand the law in this area. You can be trading in the UK without a branch registered here with companies house, and vice versa.
Paul is absolutely right that development is a trading activity. However what they could be doing is holding the property in a new investment company during the protracted planning process, and they will say this was not trading and the gain is not taxable. They may then subsequently sell to a trading company to undertake the actual development. As Paul says, in principle a non-UK company would be more-or-less equally taxed on the development profit, although there are a variety of rather dodgy (and likely ineffective) schemes around that claim to avoid this result.
I do understand the law, I think
And I agree that it is normal to use multiple companies
That way tax and maybe SDLT can be avoided and no trade in the UKL is created
I do not agree the same outcome results as if UK resident
I think I ma right to say so
It doesn’t need to be registered with the Registrar of Companies until and unless it establishes a permanent establishment in the UK. The mere ownership of land with a view to gaining planning permission it does NOT constitute a permanent establishment AT THAT STAGE.
If the Bahamian gains planning permission and then sells the land prior to developing it then that is still a UK-source trading gain, not a capital gain, and is subject to either income tax at 20% or corporation tax at the prevailing rate (which one will depend in various factors).
It is unequivocally NOT acting illegally at the moment, based on the information provided.
I agree with you
All I said was that at present there is no indication it thinks itself resident
Ciaran/Richard
There is a lot of case law on this. There are numerous “badges of trade” which help HMRC to conclude that a foreign company did not intend the land to be an “investment”, as opposed to a trade. It most cases it is pretty clear.
Quite likely they’re plannning to ensure the large rise in value if/when planning permission is granted occurs when the property is held by the offshore company, and so isn’t subject to CGT. The SDLT cost they’ll incur along the way is small by comparison. Hard to call this avoidance, given that it would be simple to make CGT apply to offshore holders of UK land but successive governments have declined to do so. Poor policy in my view, but you can’t blame taxpayers for taking advantage of it. Fairer to blame the MPs who whine about avoidance but do nothing to close simple and longstanding loopholes like this.
The company is acting legally – of course
But if examples evidencing the need for reform are not presented then the case for that reform is not made
I assume that is a typo and you mean “legally”, but you may want to fix it.
The problem with the tactic of presenting individual examples is that often the case for reform is never actually made, or at least not reported. Your quote above is a classic example – you could have said “and this shows why it’s unfair and illogical that foreign companies aren’t taxed on their capital gains” but you didn’t. Hence you have, to date, been much more effective in stirring up righteous anger than you have been at presenting simple and easily implemented changes in law.
Typo corrected, thanks
And I think the GAAR, country-by-country reporting reform, beneficial ownership reform, the OECD BEPS project and more besides completely belies your claim of ineffectivness
Why? A uk incorporated company can quite easily be non uk tax resident just as a non uk entity can easily be uk tax resident. The country of incorporation is irrelevant as far as uk tax rules are concerned
But that should not be the case and it was the will of parliament, in my view,that this was not the case
Anth
Are you sure about that? It is a long time since it was possible to have a non-resident UK company. All UK-incorporated companies are automatically UK resident. They can also be dual resident (incorporated in the UK and managed and controlled elsewhere), but that would only help them potentially if “elsewhere” has a double tax treaty with the UK.
You reflect what should be the case
Actually it is possible to be non-resident according to HMRC
I am not sure that is what parliament intended
Richard
Technically HMRC are correct if the UK-incorporated company is genuinely dual resident in a jurisdiction which has certain provisions in its DTA with the UK, The Bahamas is not one of those.
“I have just returned from a business trip, which I shared with an architectural engineer. He was telling me of the vast number of new high-rise residential buildings (over 60 at the last count) that are being constructed in the centre of London. He talked about the number which, once completed, will stand completely empty, having been already purchased ‘off plan’ by wealthy foreign investors in China, Malaysia, the Middle East and India, who own them but will never live in them. They will stand permanently empty and idle, their windows bare, like huge stationary ghost-structures, a monument to greed and funny-money”
http://rowans-blog.blogspot.co.uk/2013/10/the-secret-plans-for-london-why.html
Aren’t they let?
Are they really standing empty?
Dunno…probably the local council may, but that hardly applies in central London.
“He says many overseas buyers own multiple homes around the world and rarely spend time in any one, however much it cost. As a result, parts of PCL fail the neighbourhood test of having milk and newspapers on sale within a short walk of where people live. “Why should owners care? They’re never here to need them,” Mead says.
In 2012, of 7,000 new-build homes sold in PCL, more than 5,000 went to overseas buyers, and the estate agency Knight Frank says buyers from just two countries, China and Singapore, bought 40% of them. Savills, another agency, says fewer than half of PCL buyers treat their purchase as their main home, the rest are just investments”
http://www.theguardian.com/money/2013/jun/20/prime-central-london-property-bubble
They are empty, they don’t need rental income. That is one reason why there is such high rent demands in the UK.
Its a sad situation.
John M
I travel to Asia a lot, and its fascinating to see adverts for big off-plan London developments filling the money pages of the newspapers in Hong Kong, Singapore and Malaysia. We only hear about them in the UK if they haven’t sold out there! Many buyers pay their £5k reservation fee and 25% deposit, with 75% balance payable at completion. Because the construction takes typically 2-3 years, by that time the 25% deposit is invariably worth 30% more,so the buyer just “flips the contract”. I would suggest that this is actually a taxable “trade” in UK land, but I doubt it ever gets picked up.
Many are bought as rental investments, and many are bought as accommodation for their children who attend university in London (extremely popular). Some are kept as a pied a terre for the parents when visiting their kids.
I have seen at first hand some of the exhibitions in Singapore. Some buyers will snap up a dozen off-plan at a time, The likes of Berkeley Group spend fortunes marketing out there, and its a very successful strategy indeed for them.
Just another example of the economic mess we create if we don’t claim land rent for public benefit. £multi-million properties in Kensington Chelsea incur an annual Council Tax of £2143 (about twice the Council Tax for the very poorest houses). This could be reduced by 25% if there was a single owner occupant – and the liability disappears completely if the property is rented out. Most non-residents won’t bother with the ‘inconvenience’ of renting out because they are confident of the huge capital gain with no effort.