Foreign owned property, bought largely for speculative purposes, is hollowing out life in London. Sadiq Khan is right to be worried about the consequences and right to call for the evidence, albeit that much of the groundwork was done recently by Private Eye.
The real issue here high is what can be done about it. I suggest the following.
Furst any company owning land or buildings in the UK must be deemed to be operating a branch in this country. This then means it must be registered with Companies House, disclose its beneficial ownership and accounts and pay tax in the UK, if appropriate.
Second, the tax return for such a company must require disclosure on the use of the property. Sufficient information must be required to determine whether an owner or user of the property may be tax resident in this country. It is all too easy at present for such information to be hidden behind a veil of secrecy.
Third, the penalty for failing disclose this information should be that title to the property should be declared null and void. I suspect anything less will lead to massive non-compliance with too limited a reward for enforcement action to be justified.
Fourth, no sale of any such property should be allowed without a charge being registered on the property to enforce payment of all taxes and other liabilities arising. The new owner would be liable for their settlement as a result. The consequence would be withholding of consideration on sale would become normal until all liabilities were cleared.
And I would also urge substantial new council tax charges on predominantly unoccupied property as a first step in the right direction.
There will, of course, be howls of protest at such suggestions. But all they do is enforce tax law, adjust for the economic and social externalities that this speculation is imposing on London and seek the transparency on property ownership issues that UK law has always intended should exist. In that case they are fair and appropriate. It's time for action.
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..or just introduce a Land Value Tax… wouldn’t that be simpler? Even revalued Council Tax with an increased number of bands would work wouldn’t it?
Should work as long as you make the cost of holding property high enough, and the penalties for non-compliance stiff enough – as you describe above. That’s without needing to enforce company registrations, tax returns etc.. It’s the land that counts.
I wish it were that simple…it isn’t
The problem in London is massive but it’s not the only one. Yesterday Greenpeace managed to get some decent press coverage for a very old story – namely that public funds are being siphoned to offshore companies and other unidentifiable beneficiaries hiding behind LLPs and other fronts, via the Common Agricultural Policy. The focus was on a Saudi Prince claiming farm subsidies on his stud ranch, but there are many others.
With our impending exit from the EU, we have the opportunity (and obligation) to come up with a new system to support farmers and landowners across the UK, though it’s more likely that there will be four new systems, one for each UK country. We can design a new scheme which prevents this sort of abuse, as well as stopping the likes of Daily Mail editor Paul Dacre raking in £50,000 a year of public money because he owns a grouse moor. However, there are powerful forces who will be pushing for maintenance of the status quo, while others will be looking to remove all support and tariffs, in this new golden era of Free Trade.
One really good place to start would be that the Rural Land Registry is published and the data available to anyone for free. At the moment it is not and can prove very expensive for the average member of the public. Another would be, similar to what you propose Richard, is that all the remaining unregistered land (around 20%) is compulsorily registered. This would help reveal how much land is being held by offshore companies and other methods for keeping beneficial owners secret.
Bravo Richard.
Khan should start with One Hyde Park which stands as a temple to freebooter capitalism, excess and greed. It representative of many forms of abuse and dealing with it would be the perfect signal that the party is over.
I would be wary of Sadiq Khan. His deputy in recent weeks called for the goverment to exempt big institutional landlords from the increased stamp duty. Now that simply is not fair that a individual ploughing which could perhaps be a lifes savings into a property paying would pay more than a huge conglomerate.
The property bubble scam is one of the great scandals of the last 40 years which successive governments have been impotent (deliberately?) to stem. In fact, I would say it is the very symbol itself of the neutering of the state in favour of international capital and the lifting of the rentier to lodestar of economic ‘development.’
This has created a process known as ‘gentrification’ which creates some improvement to neighbourhoods on one level but also creates socio-economic cleansing as it does so. Some areas of London, for example, can only support those on benefits and those on salaries over £180,000, those in between are ousted.
Land Value Tax alone probably won’t do it as the problem is so advanced that 40 years of ‘unearned increment’ can no longer be collected.
Of course LVT would fix it. Paying several million a year instead of £1100 would kill speculation dead.
But you wouldn’t pay several million a year because no one would charge that
Our proposal is that you start on a revenue neutral basis for each local authority with a clear progression towards equalisation. That the game is up will soon become apparent. Others believe that you can start big and use much of the extra revenue for transitional relief. Foreign owners could either be treated like a business with immediate higher rates in the first case or in the second case not be entitled to the transitional relief.
Carol, the point I was making that we are 40 years INTO the bubble-LVT doesn’t do ‘retrospective’ as I understand it so it would kill speculation but only at the point where the bubble is at neat maximum inflation.
it’s the prices THEMSELVES that need to crash-LVT would just say ‘NO MORE FROM NOW’.
Unless I’m misunderstanding?
Carol, one more point if I may. In a paper you co-authored, you talk of a phased in rate of 0.85% up to 3% over 20 years. Doesn’t this show that LVT coming in AFTER a housing bubble has reached such proportions will take nigh on a generation to assuage?
I support LVT but other measure will be needed along side it because the stable door has been left open for so long.
The initial percentage of capital value would be adjusted to achieve the same revenue neutral (with Council Tax) position. So if prices went down the percentage would go up. It should be noted also that the percentage is based on the discount rate which also changes. And, I believe, in the conclusion we talk of going beyond 3% in order to capture eventually all land rent for public benefit. It is indeed true that the bottom of the housing market would be the very best time for LVT to be introduced rather than the top and the former is the more likely in the medium term.
This blog is about foreign-owned property – I believe that our proposal could be adjusted to deal with that immediately, as I said above. I thought of including such a special provision in the paper – the result of a review by Labour Campaign members. We added provision for second homes but the foreign-owned residences detail did not get into the final draft.
The paper now needs updating, to take account of the new Business Rate valuations and particularly in light of the plan to hand Business Rates control back to local authorities and phase out direct grants by 2020. However, I cannot see how the latter can be implemented.
Simon, if you are referring to wider issues of inequality, housing, etc., of course LVT is not a panacea.
Premium on any purchase by a non-Uk or non-Euro resident person/company. 400% premium should do the job. 95% tax on any gains when sold – based on the non-premioum purchase price vs sale price. Solved.
I think I may be a little moderate than you
qui moi? 🙂
Two words:
Yes please!
I honestly can’t see what this achieves.
If a business is carried on in the UK through a permanent establishment (viz a UK property), then it will be subject to UK corporation tax. Likewise if income is derived from a UK property the income will be subject to income tax under Schedule A, with the provisions relating to overseas landlords providing additional support for the tax authorities.
If there is a deemed permanent establishment by virtue of the ownership of property, there is no tax liability arising unless there is a business carried on at that permanent establishment (which would have been taxable irrespective of the ownership of the property). A foreign company would be liable to UK corporation tax only on so much of his income as is actually arttributable to the PE. The simple deeming of a PE where there is no actual business and the ownership of property in the absence of a business change nothing.
I am sure you can’t see the benefit
But then you have proved when commenting over the years that you have remarkably little understanding of anything to do with tax, society, transparency or responsibility so I take it as a compliment that you do not understand it
It is, I would have thought, obvious that my goal is not to collect CT per se, but to gather data for other tax and legal purposes. But you do not get that. Oh well
I like these proposals a lot, they lift the veil and let us see what’s really happening, and actually do something about fixing the problem that is actually fair and honest.
This isn’t just about London either, though as a Londoner born and bred it irks me no end to see what is happening to my home town.
I ceased being able to afford to live there when my monthly mortgage payment hit 14% odd, back in the “Good Ol days”, thus my monthly payments going from 380pcm to 1200pcm in a very short space of time.
Thanks Maggy, did me a favour.
I left London after selling up and bought an old farmhouse and 2.5 acres in The Netherlands for the same money as the 1 bed flat I had sold in N london