Deals to sell ultra-luxury houses on a street dubbed "the world's most expensive terrace" have been structured by their developer in a way that would allow buyers to avoid millions of pounds in stamp duty, the Guardian has learned.
The insight into the operation of the highest end of the property market comes against a backdrop of sustained action from the Treasury, and attention from campaigners, on legal tax avoidance through offshoring.
Developer Oakmayne Properties from 2007 bought the leasehold on a number of properties on Cornwall Terrace, in Regent's Park, London, from the Crown Estate. It redeveloped them into luxury properties selling for tens of millions each, sporting internal lifts, servants' quarters, gyms and spa facilities.
Oakmayne bought several of the houses using a series of companies – known as Special Purpose Vehicles (SPVs) – based in the Isle of Man and created to buy and refurbish each of the houses.
Secretly recorded footage obtained by the Guardian shows Oakmayne's sales and marketing director responding to questions on how this offshore arrangement could allow potential buyers legally to avoid paying stamp duty during a tour of a £27m house on the terrace. At the time, the stamp duty on the sale of the house would usually have been £1.35m.
The footage was commissioned by the London nightclub Ministry of Sound, which is engaged in a planning dispute with Oakmayne over a proposed 41-storey development opposite the 21-year-old venue. It was filmed in March 2012, shortly before the chancellor George Osborne's budget, using an undercover "mystery shopper" posing as an agent for wealthy clients keen to purchase using an offshore company. After reviewing and verifying aspects of the footage, the Guardian has published excerpts online.
The film shows Oakmayne's sales and marketing director Beth Dean escorting the apparent client into number eight Cornwall Terrace. "So this house is on at 27 [million] as well, this one has a lift, and this one is held in an SPV," she says.
The client specifically asks about the tax implications of buying in this way: "If we're going to do this with an SPV, that's where we would be able to negate stamp duty?"
Dean nods, and echoes "the stamp duty".
The mechanism by which houses are exchanged using SPVs is somewhat complex, but essentially works like this: rather than buying the house and changing the registered owner, a purchaser instead buys the company. As the company is held offshore, there is no indication to UK authorities that it has changed hands, and records at the Land Registry – which holds details of the ownership of all UK properties – do not need to be updated.
Buying in this way, which is entirely legal, grants the purchaser total anonymity and confidentiality in UK records, but – as the registered owner of the house does not change – also allows the buyer to avoid paying stamp duty. In the case of ultra-luxury developments like Cornwall Terrace, this can deprive the exchequer of millions of pounds.
Campaigners against tax avoidance say SPV arrangements can also potentially benefit developers, either through securing a higher selling price than would be possible if the buyer also had stamp duty to pay, or by facilitating a quicker sale by virtue of the relatively lower price.
In the footage, Dean goes on to suggest that Oakmayne had already sold several properties on the terrace to buyers through SPVs, and the process had proved straightforward.
"Interestingly, most of our purchasers who have gone SPV, they've had, usually, a company in the Isle of Man. And it worked," she says. "But you can have it anywhere – Jersey, Monaco, wherever they have it, you can do it through the Isle of Man, we've got all the accountants there, and solicitors."
Later, she suggests a particular law firm to the client: "It's easy, because they've done two of these for us already."
In March's budget, Osborne announced steps to discourage offshore ownership of houses and the legal stamp duty avoidance this enables, as the practice became relatively prevalent in top-end properties – in the One Hyde Park apartment complex, for example, at least 30 flats are owned through offshore companies.
While still entirely legal, the initial purchase of any residential property worth over £2m by a company now attracts a punitive rate of stamp duty of 15%, intended to make setting up such structures uneconomical for developers.
On Tuesday, the Treasury proposed a new annual charge on homes worth more than £2m owned through companies as part of the Finance Bill 2013. In its guidance, it explains the purpose of the new charge is to "tackle tax avoidance" and ensure those holding high value dwellings "pay their fair share". Property development companies will be exempted from the new charge.
In another part of the footage, Dean appears to explain how the way in which the ownership of the Cornwall Terrace properties was structured could allow buyers to get round measures to discourage the purchase of properties using offshore companies, which at the time were being mooted in media coverage.
She tells the "mystery buyer" that the houses will be exempt from measures aimed at "not letting you buy a house as a company" because several of them are already individually owned by separate offshore companies.
Because the clampdown announced in March by Osborne only affects new purchases of high-value homes by companies, those houses already owned in such a way – like those at Cornwall Terrace – are not subject to the punitive stamp duty rate.
"Because the company this house is owned by is the company it was built under, there are accounts … but that's why it makes it a much safer purchase when you're buying it as a company," she explains.
"You know how they're making the noise now about not letting you buy a house as a company? This is actually built under that company, so it's a valid company. It's not just one share that's never traded. Each house is owned by a different company, and it was built under that company."
She's asked: "So it was envisaged this would happen?"
"Yes," she replies.
The ownership structures for Cornwall Terrace would have been set up at the time of purchase, from 2007 onwards, before the current public opposition to legal tax avoidance.
A representative of Oakmayne said the footage obtained by the Ministry of Sound was "misleading" and had been "obtained by entrapment". He denied Oakmayne had any properties available for purchase through SPVs at the time of the mystery shopper's visit, and said the first property that had been viewed was only available for purchase in the conventional manner, and would have required stamp duty to be paid.
He added Oakmayne at no time "raise[d] the issue of tax or the timing of any purchase", and said the footage was nine months old, and since that time the law had changed to add a higher rate of stamp duty to purchases through companies.
He added: "Notwithstanding that, our clients are aware of a number of high-value purchases that have taken place in this way in London. There would be no reason to purchase in this way other than for confidentiality, privacy, or anonymity."
The Ministry of Sound justified its filming as being in the public interest, but acknowledged it was locked in a bitter property dispute with Oakmayne over its Elephant and Castle nightclub.
Oakmayne's plans for a residential development were rejected by Southwark council, but have been called in for review by the mayor of London, Boris Johnson, who will decide on whether the development will go ahead early next year.
"I was dismayed when Christopher Allen's Oakmayne announced plans to build a residential skyscraper bang opposite our club," said Ministry of Sound CEO Lohan Presencer.
"This would be the end of Ministry of Sound, London's best known club for the past 21 years, employing 200 people … There were reports of complex offshore structures Oakmayne uses in its developments. An agency told us they could obtain film, we told them to go ahead."
Allen, the chairman of Oakmayne properties, has previously written in the Guardian that he believed his development poses no risk to the future of the nightclub.