The leading Brexit campaigner Michael Geoghegan is not resident in the UK for tax purposes, the Guardian can reveal.
According to documents, the former chief executive of HSBC held his £8m Kensington townhouse through an offshore company – and planned to avoid tax by effectively renting the property to himself.
The details came to light as part of a Guardian investigation prompted by the Panama Papers leak.
Geoghegan said he took on temporary residency in the UK on three occasions while he was working for the bank. Explaining his decision to use offshore companies to hold British property, he said: “I am an international investor who has in the past invested in the UK as well as other countries.”
The banker was one of 250 business leaders to sign a recent letter saying they support Britain leaving the EU. He is one of several signatories of the letter, which was coordinated by the Vote Leave campaign group, to use offshore companies to manage his wealth.
Geoghegan’s strategy to rent the Kensington house from his own trust was only disrupted by “very aggressive taxation rules”, introduced by the government in 2012.
The banking executive ended up selling the house for £8m in 2014 after warning that “very disadvantageous” rules to limit the offshore ownership of UK property would lead to the “winding [up] of a very large number of trusts and companies before next year”.
In an email to the law firm Mossack Fonseca in March 2012, Geoghegan set out the ownership structure of the Kensington house while asking for a quote for their services. The banker, who was born in Windsor, explained that he was the beneficiary of a trust called the Michael Geoghegan Settlement Trust.
“Currently the Michael Geoghegan Settlement Trust is a trust established in Jersey in 2004 with the assistance of Deloitte’s with the trustees being HSBC Trustees Jersey CI Ltd,” Geoghegan wrote. The trust owned a British Virgin Islands company called Shireburn Ltd, which in turn owned the Kensington house.
The house was bought in 1997 for £957,695. It was then rented out to a footballer playing for Chelsea. The London football club paid £3,250 a week in rent. Geoghegan contacted Mossack Fonseca to ask whether the law firm would be able to handle the management of the trust and the renovation of the property.
“In the short term what is required is for the directors to sign off on a renovation contract and thereafter ensure that stage payments are processed, following recommendation of the same by architects already retained by Shireburn,” he wrote in an email. After the work had been done, Geoghegan proposed to rent the property back off the trust. “Once the renovation is completed the house would be rented to me and used by me as a London home,” he said.
Geoghegan appeared dissatisfied with HSBC’s management of the trust, although he had run the bank for several years. “The reason I am considering a change is that I have found HSBC trustees not to have the necessary experience in managing property,” he wrote.
However, just days after the email was sent, significant changes to the taxation of offshore-owned property were announced by George Osborne in the budget. The new rules meant that properties owned through offshore companies would be subject to an annual tax, as well as a 15% stamp duty rate when they were sold. Properties owned offshore could previously avoid stamp duty, because the shares of the company were transferred rather than the house.
“You may or may not be aware that at around the time you quoted the British government, in its budget, announced very aggressive taxation rules [effect from April 2013] which if imposed will be very disadvantageous to holders of UK property in companies and/or trusts,” wrote Geoghegan in April. He added that he was waiting for further advice on the implications. “The proposals are subject to further consultation with the taxation industry but if imposed will most likely lead to the winding [up] of a very large number of trusts and companies before next year.”
Geoghegan had worked at HSBC since 1973, often overseas. He spent eight years in Asia, seven years in the Middle East and 12 years in both North and South America. He was group chief executive from 2006-2010. In 2009, he moved the chief executive’s office to Hong Kong but said he would be “analysed for tax in the UK”.
In an email to the Guardian, Geoghegan said that he was not domiciled in the UK and not a UK resident. He pointed out that successive British governments had encouraged the use of these structures by foreign investors, even if this created an “unlevel playing field”.
Geoghegan said: “Since the early 60s the UK government [along with many others in Europe, Asia, Latin America and the Caribbean] have encouraged foreign investment in residential and commercial real estate. The structure recommended for such types of investment has mostly been corporate structures – in some cases governments give tax advantages to foreign investors for using such structures.
“In the case of [the] UK, up until 2015, all chancellors of the exchequer for the past 50 years or more provided exemption from [capital gains tax] on the property itself or on the sale of the shares in the offshore corporation if owned by non-residents. Additionally all foreign investors received an exemption from the potential of [inheritance tax], if the underlying UK assets were held through a company.
“I appreciate for many this appears to be an ‘unlevel playing field’ compared to domestic investors’ obligations, but for most countries inward foreign currency investment is a major part of each country’s approach to attracting legitimate foreign currency.”
According to the Panama Papers, Midland Bank – part of HSBC – set up three companies for Geoghegan in 1997, the year he moved to Brazil. “All of these three companies have been acquired by Midland Bank plc for one of their senior executives – Michael Francis Geoghegan – who will appear as a signatory on the companies’ bank accounts,” noted an assistant at the bank. Besides Shireburn, the other two companies were Eastville Ltd and Berridge Ltd.
According to a tax return for Shireburn, the house was rented out while Geoghegan was living overseas. In 2000, the company received £72,375 in rent in one year. However, because the company paid out £71,676 in expenses (including mortgage interest), the declared income for the company was £699. When the 10% wear-and-tear tax allowance was added, the company declared a £6,539 loss.
Eastville Ltd owned a house in Chelsea. It declared rental income of £77,780 but also declared an overall loss after repairs and mortgage interest were factored in. The house, which has now been sold, is currently valued at £5.2m, according to the property website Zoopla.
Offsetting costs against tax in this way is completely legal.
After standing down in a bruising boardroom battle in 2010, Geoghegan was replaced by Stuart Gulliver, who has faced criticism for his own financial planning. Last year, the Guardian revealed that Gulliver had sheltered millions of pounds in a Swiss account through a Panamanian company, while remaining domiciled in Hong Kong for tax purposes. Gulliver said the structure was for reasons of privacy rather than tax advantage.
Panama Papers reporting team: Juliette Garside, Luke Harding, Holly Watt, David Pegg, Helena Bengtsson, Simon Bowers, Owen Gibson and Nick Hopkins