March 20, 2010 12:24 am

Tax appeal

 
Gorey Harbour and Mont Orgueil Castle in Jersey©AFP

Gorey Harbour and Mont Orgueil Castle in Jersey

Guy Hands, the British private equity tycoon suing Citigroup over his purchase of record company EMI, recently filed papers with a New York court. They revealed that since he moved to the Channel Island of Guernsey a year ago to avoid UK income tax at 50 per cent he had visited neither his school-age children nor his parents on the mainland for fear of receiving a large bill from the Inland Revenue. Such are the extents to which wealthy individuals are going to avoid increasing UK taxation rates.

Hands is just one high-profile example of the tide of high-earning Britons relocating to the Channel Islands to escape tax rises. Just off the French coast, the islands are split into two legal jurisdictions: Jersey and Guernsey. They are British crown dependencies but not part of the UK. Income tax in both is 20 per cent and there are no capital gains or inheritance taxes. Jersey’s population is about 95,000 and Guernsey’s is about 65,000. This means, not surprisingly, that many rich people are chasing a limited number of properties on the islands. As a result, there are restrictions on who can buy or live there.

In Jersey, which measures 45 sq miles, the law sets three categories of houses: those only available to local residentially qualified people (born in Jersey or resident for 11 years); those available to “essentially employed” residents (sponsored by an employer or with a particular skill); and those available to individuals whose residence in the island “can be justified on social or economic grounds” (mostly the very wealthy). Houses in the third class usually cost £1m or more. The rules are being relaxed, however, so “essentially employed” people will soon be allowed to live in any housing.

In Guernsey there are two classes of property: local market and open market. While anyone can buy a property, you can live in a local market home if you are a locally qualified resident only or you have a licence to live in it because of your work. If you are a European Union citizen you can rent or buy open-market accommodation. About 10 per of homes are open market and they normally cost at least £800,000.

The island of Alderney, part of the Guernsey jurisdiction, is the only Channel Island to have no purchasing restrictions for EU citizens.

A map of the Channel Islands

Housing stock on Jersey runs from luxury seafront flats to granite farmhouses and old “cod houses” – 18th and 19th century townhouses built on money earned in the transatlantic cod trade. They dominate the streets in which they stand, often gaily painted and with Georgian neo-classical columns and façades lending a sense of grandeur. The island’s population spoke French or Jersiais – a form of Norman French – until the Napoleonic wars, when English settlers began to take over. This has left the streets with two sets of names that rarely bear any relation to each other. You hear many languages spoken on the street, a testament to the island’s growing reputation as a place to do international business.

Residential building on the islands tends to be of substantial individual homes, rather than blocks of flats or housing estates. “The local market is fairly steady but we’re noticing a lot more inquiries from the UK looking forward to the tax changes [the introduction of the 50 per cent top income tax rate] coming into effect in April,” says Robin Sappé of Jersey estate agency Le Gallais. For many tax exiles the quality of life is what puts Jersey ahead of other options. “Geneva has been a popular place to go for single high-flying professionals but if somebody has a young family or wants to be closer to the UK for health reasons, Jersey is more popular,” says Sappé. “Quite a few [new arrivals] are in hedge funds, with a few of those companies setting up here. But it’s mostly entrepreneurial professionals. We’ve got good schools and a low crime rate so it’s a good place to bring up children.”

Many of the secondary schools are fee-paying but the state subsidises them by about 30 per cent. St Michael’s or St George’s schools are fee-paying but not subsidised. Many pupils are educated locally until they are 14 or 15, when they move to boarding schools on the mainland. The health service works along the same lines as the UK: residents pay social security and enjoy free access to most services.

But what kind of social life is available to multi-millionaire hedge fund managers used to all that London and other big cities can offer?

“We’ve got great golf courses and we’re spoilt for choice when it comes to restaurants – quite a few are Michelin-starred,” says Sappé. “Mind you, when you get to that income bracket people fly backwards and forwards to the UK and mainland Europe regularly.”

In terms of the market, prices are static. “Jersey tends to follow the UK about six months later. Some agents here say they are rushing around like mad already. That’s either ambitious or poor time-management. The market is fairly steady and I think it will be for the medium term and we will start to see major growth begin in the autumn.”

Those who fly to the UK mainland often tend to choose the west of the island, near the airport. Several airlines serve the islands, including British Airways and low-cost operations such as BMIBaby and Flybe. Flights operate from all large British airports and take roughly an hour from southern England. European cities including Paris and Berlin also have direct flights.

Residents with children tend to live in the east, close to the schools. The outskirts of the capital, St Helier, are good for high-value flats with sea views – £200,000 for a one-bedroom unit. Substantial houses tend to go from £2m upwards.

Sitting in the nearby Pomme D’Or hotel, where Victor Hugo, author of Les Misérables, once stayed, British financial adviser John Woods explains why he is planning to move to Jersey: “Some of my clients just got fed up with the taxes going up and up and so they were thinking about coming here. I came over for a look and thought ‘why not?’. If the taxes keep going up for ever Britain just won’t have any talented people left in a few years.”

Katie Griffiths, director of Jersey-based Ace Relocation, has seen a sharp increase in the number of people looking to relocate from the UK. But she has also seen a number of Britons moving closer to home from other tax havens, such as Switzerland. “They are looking for a jurisdiction that is financially transparent and tightly regulated but is also closer to the UK for business,” she says. “And it’s a good community, so new people coming on to the islands are quickly embraced.”

James de la Cloche, director of estate agency Edge, puts the draw for wealthy incomers down to a lack of nosiness on the part of their new neighbours: “The beauty of Jersey is that these guys are vetted to the hilt to get their licence to come here but when they arrive they can just blend in; become anonymous,” he says.

Le Gallais, tel: +44 (0)1534-766 689, www.legallais.co.uk
Edge, tel: +44 (0)1534-601 150, www.edge.je

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