Port Hercules and the southwestern ward of the second smallest and the most densely populated country in the world, La Condamine, Monaco

    A home in a tax haven

    3 March 2018

    If there is one group of people you might think would be celebrating the rise of Jeremy Corbyn, surely it is estate agents in tax havens. With Labour floating the idea of land taxes and wealth taxes — John McDonnell has spoken approvingly in the past of a tax of 20 per cent on the assets of the rich — surely there has been no better time to move to the Isle of Man.

    Yet there is scant sign of it. While property in tax havens surged during the long boom which inflated property prices throughout the 2000s, it has not made many people rich since the 2008/09 crisis. On the Isle of Man, prices are a mere 2 per cent higher than they were in 2011. On Guernsey they have plunged 10 per cent since 2014. On Jersey they have climbed 16 per cent since a trough in 2013, but there has been no Corbyn bounce — in the third quarter of 2017 they were just 2 per cent up on a year earlier.

    Further afield, the varying experiences of property markets underline just how idiosyncratic these markets are, with thin volumes of sales and intermittent bursts of interest from the world’s wealthy. Cayman Islands property owners, poor things, had a torrid few years up until 2014, but have enjoyed rising values since. The British Virgin Islands’ market did not start to recover until 2015, but has grown strongly since, with the average sales price surging nearly threefold in one year. As for Monaco, the principality is like one of those restaurants that doesn’t bother to put prices on its menus, on the assumption that its customers are too well-off to care about the bill — there are no official statistics on property transactions.

    Anecdotally, however, Monaco is something of an exception in being a honeypot for investment in residential property. While vast amounts of money are channelled through tax havens — the Cayman Islands ranks by some estimates as the sixth biggest banking centre in the world — many act more as letterboxes than as premium residential neighbourhoods. The Isle of Man proved a tax-efficient place for Lewis Hamilton to land his new jet for a few minutes, but don’t expect to bump into him or many other wealthy individuals in the offices of the island’s estate agents. The super-rich, or even the merely rich, don’t seem overly keen on living there. The Manx authorities have never felt the need to impose restrictions on who can and can’t own property there — even with the lure of income tax at just 20 per cent. If you want to buy a two-bedroom flat overlooking the seafront in Douglas, it is yours for £140,000. A four-bedroom Victorian villa can be had for £250,000 — not a huge amount more than across the water in Morecambe. True, Jeremy Clarkson has a pad on the Isle of Man, but he is the exception — and he may be more attracted by the island’s accommodating attitude towards petrolheads, in the shape of the TT races, than by the chance of a tax-efficient retirement there.

    Jersey has higher house prices, and more of a reputation as a place of residence for the rich, but even so it has not given rise to the fortunes that property investors elsewhere have made over the past couple of decades. According to the States of Jersey house price index, the average home on the island increased by 65 per cent between 2002 and 2017 — which compares with a rise of 82 per cent for the UK market (as measured by the Nationwide index) and 129 per cent in London.

    But then Jersey does what Britain has refused to do — and under EU law is unable to do — introduce controls on who can and can’t buy property. Property-buyers need either to have lived in Jersey for at least ten years or to qualify as a ‘high-value resident’ — for which you must prove that you have a sustainable income of £625,000 a year. Anyone who does take this route is then compelled to buy or lease a home worth at least £1.75 million.

    If Britain’s wealthy did decide to decamp from a Corbyn-led Britain, Guernsey wouldn’t be much of a lifeboat. The island has two parallel property markets: one for locals and one for outsiders. Ninety per cent of properties fall into the former category, leaving only 1,600 available for outsiders. Only Alderney — all three square miles of it — has a property market which, like the Isle of Man, has no restrictions. There is no sign of a property boom there. According to the island’s estates office, the average sales price plunged from £450,000 in 2012 to £250,000 at the end of 2016, in a kind of delayed reaction to the financial crisis.

    One thing to bear in mind is that tax havens do not always look like tax havens when it comes to buying and selling property — transfer taxes are often their preferred means of extracting revenue. Take Monaco, which levies a 4.5 per cent real-estate transfer tax, as well as VAT on 19.6 per cent on new homes. One way to measure property taxes is the concept of ‘round-trip’ costs — how much money you would lose if you bought and sold a property at the same price. In Britain it is 8 per cent; in Monaco it is 17.5 per cent. The lowest in Europe, interestingly, is otherwise high-tax Denmark, at just 2.2 per cent. I bet you never thought you would look upon the Danish kingdom as a tax haven.