Why any tax avoidance "clampdown" is a ridiculous game of whack-a-mole

Danny Alexander's "mansion tax lite" has been torpedoed by oligarchs claiming their £2m+ properties are "open to the public". It shows how hard it is to stop the rich - and their lawyers - finding creative ways to beat the taxman.

In all the furore around the Budget, the Spending Review and so on, many have ignored the introduction of the Lib Dems so-called "mansion tax for tax-dodgers". This "tax", which only affects properties worth over £2m, was actually the closing of a loophole. 

The loophole in question - which allowed people to avoid stamp duty on expensive properties using offshore companies - was theoretically sealed from the start of April. A super-duty of 15 per cent was imposed on the purchase of properties worth more than £2m by companies; and an annual charge of up to £140,000 every year was levied on them once they were bought.

Well, in theory, at least. Like almost everything else the Lib Dems have promised to do, this has all fallen down around their ears. Why? Well, that's all down to clever tax lawyers seeing a new loophole, accidentally provided by short-term lettings website Air BnB.

You see, there's an exemption written into the rules, which lets off properties which are "open to the public" from the new tax. It's meant to exempt stately homes and museums, which are often private homes but open for viewing over the summer, and quite legitimately put the earnings from the tea room into a company. No one wanted them to be hit with a levy intended to stop tax-dodging oligarchs.

Of course, when you close a loophole intended for oligarchs, you'd better be sure not to open another, or their lawyers will spot it. One bright tax lawyer came up with the idea that if you offer to let out your property - regardless of whether you actually let out - it's technically "open to the public", in that literally anyone could pay to go and stay there. Provided, of course, they can afford whatever you are charging.

It's probably pretty reasonable to charge a fortune for your One Hyde Park flat, given the amenities, which include all your mail being X-rayed, iris recognition in the lifts, panic rooms, bomb-proof windows, a 21-metre swimming pool, a cinema, a golf simulator, a wine cellar and room service via a secret tunnel from the five-star Mandarin Oriental hotel next door.

So, you advertise your One Hyde Park flat (registered to an offshore company, of course - as 59 out of 77 flats in the building are) on Air BnB, no one volunteers to pay the huge fee you ask for, and you save yourself 140 grand in tax. Worst case scenario, you have to let out your flat to someone, but you probably don't care, because you can arrange to be skiing in Gstaad for that week anyway.

Some of the properties currently being offered on AirBnb are at eye-wateringly high prices. While there is no evidence that, for example, this £3,175 a night flat is using the loophole I've described - I can confirm from a tax lawyer for a major firm (who asked not to be named) - that offering your flat out to rent has become the standard advice being doled out to his firm's "high net worth clients".

So, Air BnB will doing brisk - perfectly legal - business as every oligarch and his babushka registers. And no one who is well advised will pay the Mansion Tax-lite. And the Lib Dem plan is yet another failure. Thanks internet!

Of course, while there is some schadenfreude to be had from yet another Lib Dem flagship policy running aground on the rocks of reality, it's also a salutary lesson for policy makers on the sheer difficulty of clamping down on tax avoidance. Even if they close the "AirBnB loophole", the lawyers of the rich will find another, as long as the "open to the public" exemption still exists.

This story is a great example of how the government's attempts to clamp down on tax avoidance amount to a ridiculous game of whack-a-mole - if we want to get serious about tackling tax avoidance, what we need is root and branch reform, not tinkering at the edges. Put away the mallet, George, and pick up a bazooka.

One Hyde Park in London: many of its apartments are owned by companies in the British Virgin Islands. Photograph: Getty Images

Willard Foxton is a card-carrying Tory, and in his spare time a freelance television producer, who makes current affairs films for the BBC and Channel 4. Find him on Twitter as @WillardFoxton.

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Is Yvette Cooper surging?

The bookmakers and Westminster are in a flurry. Is Yvette Cooper going to win after all? I'm not convinced. 

Is Yvette Cooper surging? The bookmakers have cut her odds, making her the second favourite after Jeremy Corbyn, and Westminster – and Labour more generally – is abuzz with chatter that it will be her, not Corbyn, who becomes leader on September 12. Are they right? A couple of thoughts:

I wouldn’t trust the bookmakers’ odds as far as I could throw them

When Jeremy Corbyn first entered the race his odds were at 100 to 1. When he secured the endorsement of Unite, Britain’s trade union, his odds were tied with Liz Kendall, who nobody – not even her closest allies – now believes will win the Labour leadership. When I first tipped the Islington North MP for the top job, his odds were still at 3 to 1.

Remember bookmakers aren’t trying to predict the future, they’re trying to turn a profit. (As are experienced betters – when Cooper’s odds were long, it was good sense to chuck some money on there, just to secure a win-win scenario. I wouldn’t be surprised if Burnham’s odds improve a bit as some people hedge for a surprise win for the shadow health secretary, too.)

I still don’t think that there is a plausible path to victory for Yvette Cooper

There is a lively debate playing out – much of it in on The Staggers – about which one of Cooper or Burnham is best-placed to stop Corbyn. Team Cooper say that their data shows that their candidate is the one to stop Corbyn. Team Burnham, unsurprisingly, say the reverse. But Team Kendall, the mayoral campaigns, and the Corbyn team also believe that it is Burnham, not Cooper, who can stop Corbyn.

They think that the shadow health secretary is a “bad bank”: full of second preferences for Corbyn. One senior Blairite, who loathes Burnham with a passion, told me that “only Andy can stop Corbyn, it’s as simple as that”.

I haven’t seen a complete breakdown of every CLP nomination – but I have seen around 40, and they support that argument. Luke Akehurst, a cheerleader for Cooper, published figures that support the “bad bank” theory as well.   Both YouGov polls show a larger pool of Corbyn second preferences among Burnham’s votes than Cooper’s.

But it doesn’t matter, because Andy Burnham can’t make the final round anyway

The “bad bank” row, while souring relations between Burnhamettes and Cooperinos even further, is interesting but academic.  Either Jeremy Corbyn will win outright or he will face Cooper in the final round. If Liz Kendall is eliminated, her second preferences will go to Cooper by an overwhelming margin.

Yes, large numbers of Kendall-supporting MPs are throwing their weight behind Burnham. But Kendall’s supporters are overwhelmingly giving their second preferences to Cooper regardless. My estimate, from both looking at CLP nominations and speaking to party members, is that around 80 to 90 per cent of Kendall’s second preferences will go to Cooper. Burnham’s gaffes – his “when it’s time” remark about Labour having a woman leader, that he appears to have a clapometer instead of a moral compass – have discredited him in him the eyes of many. While Burnham has shrunk, Cooper has grown. And for others, who can’t distinguish between Burnham and Cooper, they’d prefer to have “a crap woman rather than another crap man” in the words of one.

This holds even for Kendall backers who believe that Burnham is a bad bank. A repeated refrain from her supporters is that they simply couldn’t bring themselves to give Burnham their 2nd preference over Cooper. One senior insider, who has been telling his friends that they have to opt for Burnham over Cooper, told me that “faced with my own paper, I can’t vote for that man”.

Interventions from past leaders fall on deaf ears

A lot has happened to change the Labour party in recent years, but one often neglected aspect is this: the Labour right has lost two elections on the bounce. Yes, Ed Miliband may have rejected most of New Labour’s legacy and approach, but he was still a protégé of Gordon Brown and included figures like Rachel Reeves, Ed Balls and Jim Murphy in his shadow cabinet.  Yvette Cooper and Andy Burnham were senior figures during both defeats. And the same MPs who are now warning that Corbyn will doom the Labour Party to defeat were, just months ago, saying that Miliband was destined for Downing Street and only five years ago were saying that Gordon Brown was going to stay there.

Labour members don’t trust the press

A sizeable number of Labour party activists believe that the media is against them and will always have it in for them. They are not listening to articles about Jeremy Corbyn’s past associations or reading analyses of why Labour lost. Those big, gamechanging moments in the last month? Didn’t change anything.

100,000 people didn’t join the Labour party on deadline day to vote against Jeremy Corbyn

On the last day of registration, so many people tried to register to vote in the Labour leadership election that they broke the website. They weren’t doing so on the off-chance that the day after, Yvette Cooper would deliver the speech of her life. Yes, some of those sign-ups were duplicates, and 3,000 of them have been “purged”.  That still leaves an overwhelmingly large number of sign-ups who are going to go for Corbyn.

It doesn’t look as if anyone is turning off Corbyn

Yes, Sky News’ self-selecting poll is not representative of anything other than enthusiasm. But, equally, if Yvette Cooper is really going to beat Jeremy Corbyn, surely, surely, she wouldn’t be in third place behind Liz Kendall according to Sky’s post-debate poll. Surely she wouldn’t have been the winner according to just 6.1 per cent of viewers against Corbyn’s 80.7 per cent. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.