The UK Government has been accused of “colluding with tax evasion” after a property deal linked to the construction of its new Edinburgh hub generated a £6.5m dividend payout to a tax haven firm.
Documents seen by The Ferret show that the government procured a 25-year pre-let agreement of the seven-storey office space at Edinburgh’s Queen Elizabeth House on Sibbald Walk with the subsidiary of a company registered offshore.
The government’s new hub in the Scottish capital will house 3,000 civil servants who will run multiple departments. These include the HMRC, the HM Treasury, the Office of the Secretary of State for Scotland, the Cabinet Office, and the Competition and Markets Authority.
But the government has been criticised for securing a lease of the commercial building, which saw subsidiaries of the British Virgin Islands-registered MAS Real Estate profit from the deal.
We can also reveal that offices of the Scottish Government’s economic development agency, Scottish Enterprise, the UK Government’s Companies House, and the NHS Lothian headquarters are owned offshore.
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Dexter Whitfield, director of the European Services Strategy Unit said that government property deals with tax haven firms were not only depriving public services and the welfare state of tax revenue, but “colluding with tax evasion”, which he called “another form of theft”.
Scottish Labour called on the Scottish and UK governments to “immediately review any contracts” they have with tax haven firms, while the GMB Scotland trade union demanded a public inquiry into the “huge lump” of public money going to such companies.
HMRC insisted that the property deal “was not at odds with the government’s determination to clamp down on tax avoidance”. The tax collection agency said it had ensured that the companies involved complied with UK tax laws prior to the deal, and that the lease payments would be taxable in the UK.
MAS Real Estate said that its profits and capital gains from the property deal had been taxed in the UK and that its taxes were “fully paid”.
Once home to the Eastern Scottish Buses depot, the high-value plot of land now home to Queen Elizabeth House – named after the monarch by the UK Government – was originally owned by The City of Edinburgh Council. It has been sold on numerous times over the decades.
The hub is part of the ongoing £240 million New Waverley development, which already houses many retailer spaces, three hotels and 150 apartments across a 7.5 acre site in the east of the city centre. The land was acquired and is managed through an opaque network of firms, mostly registered in the Isle of Man.
Queen Elizabeth House location
A title deed of the land encompassing Queen Elizabeth House shows that it was bought by New Waverley 20 Limited in February 2016, before being sold on to the London-based Legal & General Pensions Limited (L&G) in October 2017. Both New Waverley 20 and the developer of Queen Elizabeth House, Artisan, share the same Edinburgh address.
However, New Waverley 20’s latest set of accounts available on Companies House state that the Isle of Man-based New Waverley 10 Limited is the “immediate parent” of New Waverley 20. The British Virgin Islands-registered MAS Real Estate Inc. is the company’s “ultimate parent”.
The most recent MAS property portfolio also states that the firm owns a 100 per cent stake in the land at New Waverley.
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New Waverley 20’s accounts state that the firm purchased land from New Waverley 10, which was developed into Queen Elizabeth House and “pre-let to the Secretary of State for Communities and Local Government“, the accounts said. This position was held by James Brokenshire MP at the time, who has since been appointed as Security Minister.
To allow for the office space to be developed, New Waverley 20 entered into a 25-year “pre-let agreement” with the UK Government on 13 July 2017. Then, on 17 October 2017, the firm agreed to sell the office land to L&G, while still committing to develop the government offices.
New Waverley 20 received an initial £20.8 million as part of a forward funding agreement. Further “development profits” were payable upon “practical completion” of the building. This was achieved on 21 May 2019.
In the year prior to 30 June 2019, the firm made a £5.87 million profit and paid £6.5 million in dividends to its Isle of Man-based parent company, New Waverley 10.
Scottish Labour claimed that despite being the UK’s official tax collector, HMRC was “caught up in dealings with companies that seem to deprive public services of the money they are due in taxes.”
Neil Findlay, the Labour MSP for Lothian said: “Tax evasion, whether ‘legal’ or not, is something that should be condemned outright. Our economy and our public services require investment to sustain them and if everyone followed the example of this company, the country would fall apart.
“Government agencies, whether UK or Scottish, should not be complicit in these types of tax avoidance arrangements and both governments should immediately review any contracts they have with such companies.”
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In July 2018, HMRC announced the new hub as another step in its “transformation into a modern, digitally advanced tax authority”, which would help in “increasing our effectiveness in collecting taxes”.
Asked by The Ferret about the property deal, HMRC argued that it had ensured New Waverley 20 complied with UK tax laws before entering into a lease agreement. The tax collector had followed government leasing rules which had been approved by the Cabinet Office, and the property deal “was not at odds with the government’s determination to clamp down on tax avoidance”, it said.
“HMRC’s agreement with their landlord, L&G, is in line with the vast majority of large property deals in the UK, and the lease payments on the Edinburgh government hub will be taxable in the UK”, said a spokesperson.
“We do not comment on the tax affairs of identifiable taxpayers. HMRC has carried out due diligence on the parties to our leases to assess regularity and propriety.”
An accountant for MAS Real Estate said that New Waverley 20’s accounts had been audited and were “fully subject” to UK’s 19 per cent corporation tax rate, “suffering tax of £3.49m (fully paid) on profits (including capital gain) of £18.37m”.
“New Waverley 20 has made distributions totalling £9.7m but these were paid from profits after tax.” They added that during “the initial transfer” of the land from parent firm New Waverley 10, “no capital gain was sheltered in the Isle of Man and the full gain was taxed in the UK”.
Martin Slabbert, the MAS CEO since December 2019, said that his firm’s head office and executives were based in the Isle of Man until he was appointed and was “now in the process of being moved into the EU, where I and other senior execs reside”.
He added: “There is thus not a sinister tax reason for the [Isle of Man] holding”.
This story is part of our ongoing investigation into land ownership in Scotland.
The Ferret consults with our members on a regular basis about the issues that we should look into. You can get involved and help fund our next investigation by joining The Ferret.
Other Scotland and UK public institutions based in tax haven offices
Some offices of the UK and Scotland’s most prominent public sector institutions are also based in commercial properties owned by companies registered in tax havens, according to Registers of Scotland data obtained by The Ferret.
Dexter Whitfield of the European Services Strategy Unit said there was a “pattern of government property deals” with tax haven firms. The occurrence of such arrangements “is not only reducing tax revenue needed for public services and the welfare state but is colluding with tax evasion”, he argued.
Whitfield said that while governments expose benefits fraud, they “effectively do nothing about tax evasion, which is another form of theft”.
In June, we reported that the Edinburgh office of Scottish Enterprise, the Scottish Government’s economic development agency, is based in Apex House. The huge office block on Haymarket Terrace was sold in 2015 for £25.7 million, before VAT, to the Luxembourg-registered Apex 123 Edinburgh S.A.R.L.
Asked about its use of the tax haven-owned property, a Scottish Enterprise spokesperson said: “Apex House has been Scottish Enterprise’s home in Edinburgh for many years and our tenure pre-dates this sale significantly.”
We can now reveal that the agency’s Glasgow office at Atlantic Quay, 150 Broomielaw was bought for £42 million in 2013 by Jersey firm, 150 Broomielaw Limited. Scottish Enterprise said that it had been a tenant in the building since 2003, “significantly pre-dating the sale of the building”.
Until recently, Scottish Enterprise’s base in Fife, Saltire House at Pentland Park in Glenrothes, was owned by the Bermuda-registered firm, Mapeley Steps Limited. The firm bought the property in 2001 before selling it to the Glasgow-based Sava Estates Limited in May 2020.
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Mapeley Steps made headlines in 2002 when Inland Revenue, a predecessor to HMRC confirmed that it sold its estate of more than 600 buildings to the tax haven firm for £220 million. Following a BBC investigation, the Revenue admitted it had wrongly announced the properties were sold to a UK firm.
Scottish Enterprise confirmed that it has been a tenant at Saltire House since 2013, after Mapeley Steps had become the owner. “The building was already being leased by the public sector, and a minority portion of the lease was transferred to Scottish Enterprise”, said a spokesperson.
The tenancy is “under a part-lease agreement alongside other public sector organisations to ensure best value for the public purse”, the spokesperson added. “We review all our lease agreements upon expiry as a matter of course.”
HMRC’s new Edinburgh and Glasgow hubs are two of 13 regional bases which will replace 170 local offices across the UK. It is claimed the closure of the local office network will save more than £2bn over 20 years.
In Scotland, HMRC’s offices in Aberdeen and Cumbernauld, which are due to close in 2020/21, have been owned by Mapeley Steps since 2001, as has its former Dumfries office. The firm also owns properties on Rothesay, Bute and in Dumbarton, both of which are home to local Jobcentre Plus branches.
Mapeley Steps said that Inland Revenue would reap financial benefits from dealing with a tax haven company, according to the BBC. The deal was the result of a private finance initiative, a scheme which, embraced by successive governments, has left Scottish taxpayers having to foot a £40bn bill.
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The Scottish office of Companies House, the UK Government’s official registrar of companies, is also owned offshore. The Edinburgh Quay2 office block was bought for £23.7 million by the Guernsey-based real estate firm Black Needle Limited in 2016.
NHS Lothian’s headquarters in Edinburgh’s Waverley Gate, at 2-4 Waterloo Place was bought for £63 million in 2016 by the Luxembourg-registered TRIUVA Waverleygate Sàrl.
Asked about the arrangement, Craig Marriott, deputy director of finance at NHS Lothian said: “At the time of signing the lease for Waverley Gate in March 2010 the landlord had gone into administration and the administrators were a UK based company. The lease agreement expires in 2025 and will be reviewed as normal as part of our ongoing property strategy.”
Similarly, Historic Environment Scotland‘s (HES) head office in Edinburgh’s John Sinclair house at 16 Bernard Terrace was owned by the British Virgin Islands-registered Top Paragon Investments Limited until recently. Paragon had bought the property for £6.5 million in 2015 before selling it for £7.3 million in May 2019.
HES said that it and its former entities had been based in John Sinclair House since 1992. “We have a legally binding contractual lease arrangement with the property’s current owners, Scottish Widows Property Authorised Contractual scheme”, said a spokesperson.
“As tenants, ownership of the property is not a matter which HES has any control over but we are required to adhere to our contractual lease arrangement.”
GMB Scotland said that a “huge lump” of government spending on property rentals “is almost certainly going to firms that have parent firms registered in tax havens.”
The union’s secretary Gary Smith said: “The polite term is ‘tax avoidance’ but to us it’s a big rentals rip off. Government rents should not be going to property offshorers in the same way as government contracts should not be paid out to them.
“Surely it is time for an inquiry to determine in detail where our money is being spent, with what companies and whether they have offshore registrations? At the very least, there should be a moratorium on government rents and contracts being paid out to these parasitical tax-evaders.”
The Queen Elizabeth House title deeds
Header image credit: Google