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It's January. The weather's miserable. And come April, the government is going to tax high earners until they bleed. The answer? Leave the country.
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Relocating to a tax haven in the Channel Islands is no longer an idle threat. Estate agents in Jersey and Guernsey report that demand surged 15 per cent in the last quarter of 2009, driven by wealthy Brits looking to escape the new 50 per cent rate of income tax which takes effect from April.
House prices on both islands are poised to rise steeply in 2010 if sales are as strong as expected. And demand is being created not just by individuals, but whole companies looking to relocate to a tax haven.
Aside from the scenic coastlines, the attractions of Jersey and Guernsey are manifold. Income tax is just 20 per cent. Additionally, there's no inheritance tax, no capital gains tax, no corporation tax and VAT is derisory.
Who better to extol the virtues of island life than Geoff Cook, chief executive of inward investment organisation Jersey Finance, who describes his job as "proactively promoting Jersey as a relocation opportunity."
"We have started conversations with many City firms and we are seeing the beginnings of an exodus," he confidently reports. "We have a live pipeline of inquiries from firms that are not just looking at relocating the principals to the island, but substantial elements of their whole business and its personnel."
Mr Cook has so far advised 15 hedge fund managers on their relocation, including Global Advisers, which has moved staff from offices in London and New York to offices in Jersey. "They still have a presence in both cities, but the engine room of their operation is now here," Mr Cook adds.
"The Swiss Cantons are already marketing very aggressively in London and trying to tempt people into relocating to Switzerland. We'd rather they looked at Jersey, as that way they are more likely to maintain their connection with the City of London."
| Channel Islands' vital statistics | |
|---|---|
| Rate of income tax | 20% |
| Rate of inheritance tax | 0% |
| Population of Jersey | 90,800 |
| Population of Guernsey | 65,726 |
| Number of Michelin-starred restaurants in Jersey | 2 |
NEW DIRECTIONS
The rise of business people relocating to tax havens has also been noted by Sunday Times Rich List compiler Philip Beresford. Using information gleaned from records in Companies House, the veteran researcher found out that 498 directors and partners of UK companies have changed their personal addresses to Jersey, Guernsey or the Isle of Man in the past year. Furthermore, 91 UK companies have registered in the islands in the last 12 months. Channel Islands estate agents expect this trend to become more prevalent in 2010.
"We are really busy, not so much with sales, but people taking the trip to Jersey to see for themselves what it's really like," says James de la Cloche, founder of Jersey-based Edge Property Consultants.
He reports that most inquiries are for properties in the £2-£3m bracket, though he has recently concluded the sale of an £8.5m abode. "For the last two months, I've been advising two people who are relocating a meaningful part of their entire business operations over here," he divulges. "The island authorities are talking to a number of hedge funds. There are an awful lot of others booked in to the diary for January, coming over here for a look around."
"There certainly has been an increase in inquiries, and people are now seriously considering the option of moving off-shore," agrees Peter Edwards, head of sales in the Channel Islands for Knight Frank. He reports that activity is currently 15 per cent above normal levels. "Relocating is a pretty sensible thing to do - so long as you don't mind living on an island in the middle of the Channel."
Talk of upping sticks to a tax haven is certainly not new, but what makes the threat more credible today is advances in technology. "High flying finance guys can work from here easily with broadband, the internet and mobile phones," Mr Edwards says. "There is no need to be in an office in London."
Over in Guernsey, Matthew Henry, managing director of the island's leading estate agency Swoffers, welcomes the change of pace. The financial crisis meant that 2009 was one of the most difficult years in his firm's 36-year history.
"By contrast, in the last fortnight, we've sold a £3m property, a £4m property and one £4m plus property - all to UK buyers," he enthuses. "The 50 per cent tax hike is the straw that broke the camel's back. A lot of people are looking at opportunities in Guernsey, Jersey and the Isle of Man and they will be voting with their feet."
St Peter Port, Guernsey (image courtesy VisitGuernsey)
ISLAND HOPPING
So how easy is it to buy a property in a tax haven? Both Jersey and Guernsey have a "local market" (houses only available for sale to long-term residents) and an "open market" (for wealthier immigrants).
The system in Jersey is much more complicated. Before outsiders can buy a property, they require consent from the Housing Minister. The very rich can qualify for "1(1)(k)" status (named after the classification on immigration forms). This requires that your annual income will generate a tax revenue of at least £100,000, and that you will purchase a property valued in excess of £750,000 (these are known as "K properties").
If you are not quite so wealthy, but could be classified as "essentially employed" by an island-based firm (usually as a skilled financial services worker), you can also apply for residency. Flats and houses suiting this wealth bracket are known as "J properties".
But being fantastically wealthy does not guarantee entry. "To be accepted, you have to lay all your cards on the table and your personal profile has to be completely transparent," says Mr Edwards. "You have to present yourself as a package, as opposed to a money box. They will want to know what social aspects you can offer the island community.
By contrast, Guernsey is a lot less complicated. "All you need to buy a property here is a passport," says Mr Henry of Swoffers. "There is no interview process, and no minimum tax contribution." He reports a spike in rental demand as companies relocate in a hurry, and need to re-house directors.
However, the residential property market on either island can be difficult for novices to navigate. In both jurisdictions, a high number of properties are sold "off market" - that is to say, they are not formally advertised, and buyers can only be introduced via a trusted agent. If the price meets the owner's expectations, they will sell. If not, there is no loss of face. "When you are part of such a small community, people don't like their business being known," adds Mr Henry.
TAX EXILES
Now, for the all important question: how much might a property set you back? At the very top end of the scale, Woodlands (a mansion boasting its own clock tower set within a 25-acre estate on Guernsey) has a guide price of a cool £16m. It has substantial interest, and stands to be the most expensive property ever sold on the island.
Swoffers advise that buyers can find reasonable townhouses in Guernsey for less than £1m, but farmhouses start at £2.5m. In Jersey, the larger of the two islands, buyers can expect to get a little more for their money - but not much. On both islands, a common complaint is that properties are outmoded and often require substantial refurbishment to meet the expectations of gadget-mad hedgies.
Nevertheless, the transport links are pretty good. For the 90 days one can spend in the UK, air travel is the main way to get on and off the islands with regular flights to Heathrow, Gatwick, Exeter and Southampton. "There are now so many private jets and helicopters there can be a problem getting a slot at the airport," reports Knight Frank's Mr Edwards. "It's worse than getting a car parking space in central London."
The obvious barrier to making such a dramatic move is the personal upheaval - taking your kids out of school, and leaving friends, family and city life behind is too big a sacrifice for many, no matter what the tax savings might be.
Detractors compare island life to Cornwall in the 1950s, and there are (perhaps too many) jokes about wife swapping. But modern islanders argue these are trite stereotypes, emphasising the benefits of life without a commute, the islands' low crime rate, weekends spent sailing and new restaurants to enjoy (Marco Pierre White will open branches of his Frankie's concept in both Jersey and the Isle of Man this year).
The international nature of the financial community means the Channel Islands are far more multi-cultural than it was 30 years ago. As one agent sardonically puts it; "Not a lot of Bergerac watching goes on over here".
As Britons watch their tax bills soar, island life has never looked so idyllic.
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