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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Jeremy Corbyn challenged by Labour MPs to sack Ken Livingstone from defence review

Former mayor of London criticised at PLP meeting over comments on 7 July bombings. 

After Jeremy Corbyn's decision to give Labour MPs a free vote over air strikes in Syria, tonight's Parliamentary Labour Party (PLP) meeting was less fractious than it could have been. But one grandee was still moved to declare that the "ferocity" of the attacks on the leader made it the most "uplifting" he had attended.

Margaret Beckett, the former foreign secretary, told the meeting: "We cannot unite the party if the leader's office is determined to divide us." Several MPs said afterwards that many of those who shared Corbyn's opposition to air strikes believed he had mishandled the process by appealing to MPs over the heads of the shadow cabinet and then to members. David Winnick declared that those who favoured military action faced a "shakedown" and deselection by Momentum activists. "It is completely unacceptable. They are a party within a party," he said of the Corbyn-aligned group. The "huge applause" for Hilary Benn, who favours intervention, far outweighed that for the leader, I'm told. 

There was also loud agreement when Jack Dromey condemned Ken Livingstone for blaming Tony Blair's invasion of Iraq for the 7 July 2005 bombings. Along with Angela Smith MP, Dromey demanded that Livingstone be sacked as the co-chair of Labour's defence review. Significantly, Benn said aftewards that he agreed with every word Dromey had said. Corbyn's office has previously said that it is up to the NEC, not the leader, whether the former London mayor holds the position. In reference to 7 July, an aide repeated Corbyn's statement that he preferred to "remember the brilliant words Ken used after 7/7". 

As on previous occasions, MPs complained that the leader failed to answer the questions that were put to him. A shadow minister told me that he "dodged" one on whether he believed the UK should end air strikes against Isis in Iraq. In reference to Syria, a Corbyn aide said afterwards that "There was significant support for the leader. There was a wide debate, with people speaking on both sides of the arguments." After David Cameron's decision to call a vote on air strikes for Wednesday, leaving only a day for debate, the number of Labour MPs backing intervention is likely to fall. One shadow minister told me that as few as 40-50 may back the government, though most expect the total to be closer to the original figure of 99. 

At the end of another remarkable day in Labour's history, a Corbyn aide concluded: "It was always going to be a bumpy ride when you have a leader who was elected by a large number outside parliament but whose support in the PLP is quite limited. There are a small number who find it hard to come to terms with that result."

George Eaton is political editor of the New Statesman.