Vaduz-on-Thames - Why I Hate Living in a Tax Haven

Vaduz-on-Thames - Why I Hate Living in a Tax Haven

I had dinner with Boris Berezhovsky in 2007. He said to me, "Your socialist Gordon Brown has turned your country into Monaco. I had an English girlfriend like you. She couldn't even afford a handbag. I don't know how you can survive."

Perhaps there was an implicit invitation I chose to ignore - I was educated to believe that successful career women shouldn't need to sleep with sugar daddies to buy clothes. But, sadly, there was truth in what the old shark said.

"Vaduz-on-Thames, that's what we call you: a dirty little tax-haven," said an American tycoon friend, in a restaurant a hundred yards from his Chelsea house where he only spent a few days a month. Vaduz is the capital of the largely tax-free Lichtenstein. Rich Russians call London "The laundry."

A few years before, on assignment in Monaco, I had been struck by how ghastly it would be to be Monegasque - despite the azure seas and delicious food, your face would be permanently pressed against diamond-stuffed windows, beneath ludicrously expensive apartment-blocks, inflated to prices you could never afford, owned by the often-absent super rich; a second class citizen in your own country. Now I see the same two-tier system on the street where I live - in a basement, rented from family friends, who moved to Kensington long before its white-iced facades became, instead of somewhere to live, the global laundromat's currency of choice.

"At least in Monaco," I said to Berezhovsky, "The locals don't have to pay tax either."

Now finally 'The Laundry' maybe upping its charges. On 18th November the UK's Deputy Prime Minister, Nick Clegg, announced that the government was considering introducing a property tax for foreign property investors; that the Chancellor, George Osborne, was reviewing the matter and will announce any changes to parliament on December 5th.

"We need to make sure that people who invest very large amounts of money into property in central London locations...pay their fair share of tax in those transactions," Clegg told a news conference."That is why we are looking at options like a differential application of capital gains tax to those kind of transactions."

Brits currently pay capital gains tax of about 28% on any property they sell that is not their primary residence; but non UK citizens don't.

"About bloody time too," would be most Londoners' reaction to Nick Clegg's announcement but frankly it's not a solution. Although a property capital gains tax may deal with part of the problem - the zoom in property prices - it doesn't go to the heart of it. Britain, with its non-dom tax policy, is still a tax haven, for anyone who is not a UK citizen or resident and London is the must-have address for the international vagrant.

In the old days, if people didn't want to pay tax, there was a penalty - they had to go and live somewhere weird and slightly dull, like Guernsey, or the British Virgin Islands, and have boring, materialistic and possibly crooked neighbours.

Yet our last two governments - consisting of all three parties, Labour and the Conservative/Lib Dem coalition - have managed to turn one of the most exciting, vibrant cities in the world into a tax haven - for everyone other than its original inhabitants. We poor Brits struggle along, paying our tax while trying to afford houses inflated way beyond our dreams.

Kensington and Chelsea - even parts of previously seedy North Kensington and Little Venice - gleam with money and 4X4's and echo to the grunts of vast machines gouging out layers of sub-basements.

Many of these Kensington and Chelsea houses are empty for months at a time: vast tranches of white stucco central London, now hollowed out. They are investments not homes. Safe havens for swag grabbed God knows how during the vicious Darwinian supermarket race for natural resources unleashed by the collapse of communism - or, to be fair, from boldly going into the infinite frontiers opened up by the digital revolution.

But during the Diamond Jubilee, there were no street parties where we live, round Phillimore Gardens, W8, built for the loyal sons of Empire 150 years ago. Only a few, dogged Union Jacks denoted the locals. My husband and I had to go to Clapham and Shepherd's Bush for our coronation chicken; eating red white and blue cakes with, amongst others, two Duchesses, an Old Etonian film star and a couple of minor royals.

Brits are in such a minority in the smart schools of Chelsea, that their US classmates' parents' refer to them as "talking dogs" - as in "as rare as a...". And my friend complaining over lunch - in a Sloane Street restaurant where I must have been the only UK passport holder, including the staff - that Westminster council would only let her have two sub-basements beneath her Belgravia house, was Russian.

Try asking the treasury why we're the sole tax-haven in the world, where only the rich foreigners don't pay tax.

In private, treasury officials blush and stutter: "Aren't they trying to go after them with property taxes now?" said one earlier this year - referring, presumably, to this new announcement.

But of course, it's not just the property tax, it's the lack of income tax that creates so many unfair advantages.

Another treasury official, at a Notting Hill dinner, was more bullish: "In any European country the super-rich make non-dom deals with the government."

"Really? How?" Asked our host, interested, since he himself could afford a swimming pool in his basement. "They get their tax lawyers to ring," came the reply.

What, in Germany? The bullishness wavered. "Well, no, not Germany."

And Gerard Depardieu obviously didn't know who to call in France. "Ah, no." So in those shining economic models, Italy, Greece and Spain?

The bullishness collapsed into pink-edged silence. At least in Club-med countries you probably have to bribe someone: unfortunately, being British, we make it law.

Mr Treasury didn't even start muttering that government mantra: "the trickle-down effect": he knew his audience. His host aside, the only trickle-down for most of his fellow guests was an ice-cold feeling on their spine when they thought about the school fees inflated out of British professional class wallets and that they could barely afford a house in the parts of London where their muggers used to live.

Why do we put up with it? Is it some combination of imperial guilt, or residual White Man's Arrogance? Do we feel we deserve to be penalized for having the luck to be British? Are we still half-flattered all these billionaires want to live and party with us, little realizing that, like an army of facebook gatecrashes, they are in danger of trashing our house. It's not our party anymore. We're just providing the premises- because don't make the mistake of thinking the world's global super rich consider us their equals. An Old Harrovian friend working for a Kazakh gas magnate said dryly: "We Brits are just staff now." Collecting the 20ps for the tumble driers to take to the laundry, perhaps.

To be fair, some houses in white stucco London do undoubtedly still belong to Brits - but they tend to be either the elderly who bought their houses decades ago; or they are banker types, shored up not just by bonuses, but the ability to borrow their mortgages at 0.5%; another wedge widening of growing gulf between the financial services and the rest of the professional classes. Or the owners are just enormously rich - and can just about afford a large flat in Kensington.

It's extraordinary that it has taken any political party this long to twig. Perhaps the politicians - generally obsessively competitive individuals - are all far too busy desperately trying to keep up with the Abramoviches or their hedge-fund contemporaries to admit that there is a pinch to feel. The expenses scandal happened, afterall, because the MP's - all forced to live in London as well as their constituencies - could not bear the public scrutiny involved in voting themselves pay rises that recognized the astronomical rise in the cost of Middle Class living - and much of that has been fuelled by property inflation.

As for the Treasury press office, before this latest idea was floated, a few months ago the best they could do was proudly announce that the newish one-off annual non-dom tax of £30,000 a year was rising to £50,000. They also said that non-doms were now being taxed at 40% on UK-generated incomes at least over £100,000 - or was it £120,000? The press officer wasn't sure - but it was just like UK residents so that was all fair. Except, we UK residents pay 40% on anything over £40,000. If the Treasury can't do that sort of basic maths, no wonder Britain's finances are in such a state. The Revenue told me our 116,000 non-doms paid £6.2 billion in income tax last year - about £53,000 a head; the same as someone making about £125,000 a year, who won't be buying any multi-million pound houses in Kensington.

Even if this new property tax is made law there is a danger that it will be too little, too late. London is now a habit: the international capital of work and fun for those who don't have to count the cost - or want to appear as such. Whatever problems mass migration may create further down the scale, at the top, in central London, people are competing for jobs, houses, and places at school against the very pinnacle of the global elite - victims not just of our sluttish, philoxenic tax regime, but of London's beauty, geography and the self-fulfilling curse of our helium property market. One Mayfair-based Swedish tycoon droned to me: "I can do business in Beijing and Los Angeles on the same day, and my wife likes the shopping." I think I'll keep renting my friend's basement for a good while more.

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