British Tax Exiles Driving Up House Prices Offshore

by Robert Lee, Tax-News.com, London

16 July 2009

An exodus of wealthy individuals from increasingly onerous taxation in the UK is fuelling something of a mini property market boom in some of Europe’s offshore jurisdictions while property prices all around continue to crash.

According to a survey by the Sovereign Group, the international offshore tax firm, house prices in Gibraltar and Monaco - two of the most popular locations for wealthy British expats – are rising or holding steady, while property values in the adjacent markets of southern Spain and France have crashed by 50% since the credit crunch has gripped bank lending. The survey also shows that Jersey, Guernsey, the Isle of Man and Geneva are also bucking the housing markets trend, thanks largely to UK Chancellor Alistair Darling’s recent budgets.

“We believe, and all our local sources are telling us, that much of this disparity is because of interest from a new breed of British tax refugee as the UK government’s tax-and-spend folly begins to bite,” commented Howard Bilton, Chairman of The Sovereign Group.

Darling announced in April that a new 50% rate of tax will be paid on annual incomes over GBP150,000 from April 2010, but anyone earning more than GBP100,000 will be worse off as a result of his decision to curb tax allowances. Furthermore, the Chancellor is restricting tax relief on pension contributions for wealthy taxpayers.

The government hopes that the new top rate of tax will raise GBP2.4bn in revenues by 2013/14, but most wealthy taxpayers are expected to have the wherewithal to avoid the increased tax, either through tax planning or switching tax residence. Critics of the proposals also warn that it sends out all the wrong signals to the world’s business community.

“These findings confirmed what we already believed to be the case based on our own experience,” added Bilton. “For many months now, 20% of all new business at our London office has been from wealthy individuals looking to move offshore to escape what they expect to be increasingly harsh tax rises. Very often, these clients are looking to take their businesses with them. It is no wonder that the offshore locations are benefiting with healthy property markets, but it is a very sorry situation for the UK and for those taxpayers who aren’t able to go offshore.”

“What is extraordinary is that the UK government appears to believe its most productive citizens will sit still to be fleeced,” Bilton continued. “This is not the 1960s, when currency controls and limited communications made it difficult to relocate yourself and your business. This is the broadband age, when voting with your feet where tax is concerned is a very viable option for many. Everyone has to compete these days and tax authorities should not be any different.”

According to Sovereign, in Monaco, which now boasts 100% broadband coverage, there have been reports that property prices have risen by as much as 30% -- roughly the same amount that prices have fallen in neighbouring Provence. A similar situation prevails in Gibraltar.

Jersey’s chief government statistician Dr Duncan Gibaut has said that property prices have risen 7% with the worst to be expected a period of stability. “Prices are still rising but at a lower annual rate,” he said.

Property prices in Guernsey were mixed, with small apartments falling in value by up to 17%, according to the island’s Policy Council. However, at the same time the price of houses - representing 60% of residential property sales - were up a fraction at 0.1%. “From what we have heard,” said Bilton, “buoyancy at the wealthier end of the market comes from a steady stream of new interest from the UK mainland.”

In the Isle of Man, property prices last year increased by 4% and this year are “holding steady” according to Chrystals estate agents, the leading commentator on Manx property trends. However, Chrystals reports that enquiries from UK residents have “risen strongly.”

In Geneva, housing demand hit a new peak when the apartment vacancy rate fell to between 0.25% and 0.5% last year and it will continue to hold firm this year, according to “Swiss Issues Real Estate 2009,” a report on Swiss housing published by bank Credit Suisse earlier this year. In addition, the international estate agents Savills have recently published extensive research on the residential market in Geneva, concluding: “The Geneva market is expected to plateau, but not decrease during 2009.”

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