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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Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup

There is a specific word for the melancholy of Istanbul. The city is suffering a mighty bout of something like hüzün at the moment. 

Even at the worst of times Istanbul is a beautiful city, and the Bosphorus is a remarkable stretch of sea. Turks get very irritated if you call it a river. They are right. The Bosphorus has a life and energy that a river could never equal. Spend five minutes watching the Bosphorus and you can understand why Orhan Pamuk, Turkey’s Nobel laureate for literature, became fixated by it as he grew up, tracking the movements of the ocean-going vessels, the warships and the freighters as they steamed between Asia and Europe.

I went to an Ottoman palace on the Asian side of the Bosphorus, waiting to interview the former prime minister Ahmet Davu­toglu. He was pushed out of office two months ago by President Recep Tayyip Erdogan when he appeared to be too wedded to the clauses in the Turkish constitution which say that the prime minister is the head of government and the president is a ceremonial head of state. Erdogan was happy with that when he was prime minister. But now he’s president, he wants to change the constitution. If Erdogan can win the vote in parliament he will, in effect, be rubber-stamping the reality he has created since he became president. In the days since the attempted coup, no one has had any doubt about who is the power in the land.

 

City of melancholy

The view from the Ottoman palace was magnificent. Beneath a luscious, pine-shaded garden an oil tanker plied its way towards the Black Sea. Small ferries dodged across the sea lanes. It was not, I hasten to add, Davutoglu’s private residence. It had just been borrowed, for the backdrop. But it reminded a Turkish friend of something she had heard once from the AKP, Erdogan’s ruling party: that they would not rest until they were living in the apartments with balconies and gardens overlooking the Bosphorus that had always been the preserve of the secular elite they wanted to replace.

Pamuk also writes about hüzün, the melancholy that afflicts the citizens of Istanbul. It comes, he says, from the city’s history and its decline, the foghorns on the Bosphorus, from tumbledown walls that have been ruins since the fall of the Byzantine empire, unemployed men in tea houses, covered women waiting for buses that never come, pelting rain and dark evenings: the city’s whole fabric and all the lives within it. “My starting point,” Pamuk wrote, “was the emotion that a child might feel while looking through a steamy window.”

Istanbul is suffering a mighty bout of something like hüzün at the moment. In Pamuk’s work the citizens of Istanbul take a perverse pride in hüzün. No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated.

 

Down with the generals

Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.

Turkey is a deeply unhappy country. It is hard to imagine now, but when the Arab uprisings happened in 2011 it seemed to be a model for the Middle East. It had elections and an economy that worked and grew. When I asked Davutoglu around that time whether there would be a new Ottoman sphere of influence for the 21st century, he smiled modestly, denied any such ambition and went on to explain that the 2011 uprisings were the true succession to the Ottoman empire. A century of European, and then American, domination was ending. It had been a false start in Middle Eastern history. Now it was back on track. The people of the region were deciding their futures, and perhaps Turkey would have a role, almost like a big brother.

Turkey’s position – straddling east and west, facing Europe and Asia – is the key to its history and its future. It could be, should be, a rock of stability in a desperately un­stable part of the world. But it isn’t, and that is a problem for all of us.

 

Contagion of war

The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics.

Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

It is a horrible mix. Erdogan might be able to deal with it better if he had used the attempted coup to try to unite Turkey. All the parliamentary parties condemned it. But instead, he has turned the power of the state against his opponents. More rough times lie ahead.

Jeremy Bowen is the BBC’s Middle East editor. He tweets @bowenbbc

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue