A frisson of fear is running through the British tax exiles of Monaco – just
at the time when Albert II, the ruler of the tiny slab of Mediterranean rock
face, is going all out to woo more rich Brits, preferably young ones with
families, to join him in his principality. The worry is sparked by rulings
by the special commissioners who adjudicate in tax matters in Britain. It
was always thought that tax exiles could spend up to 90 days a year in the
UK without compromising their status. It was understood, too, that the days
of arrival in Britain, and days of departure, were not counted.
The rulings make clear that the “90-day rule” is not a rule at all. It has
little or no basis either in case law or statute. And the commissioners can
count nights spent in Britain, thus driving a coach and horses through the
concession on days of travel. Most upsetting of all, they referred to
“lifestyle” as an acid test of residence and domicile. A number of Monaco
lifestyles are based on flying into Britain early on a Monday morning,
getting some hard work and business done, and flying back late on Wednesday
or Thursday, having used up only one or two days of the 90. Now, in a pair
of cases, Brits who thought they had taken up residence abroad have been
told that, in terms of tax if not of the flesh, they have not left Britain
at all.
The irony is that Monaco has never been more welcoming. It may be smaller than
Hyde Park, with a population of 32,543, on a scale with that of Bridlington,
but it has big plans in the UK. “The Rock”, as jealous French neighbours
call it, has been ruled by the Grimaldi dynasty since 1297. The current
ruler is Prince Albert II, who succeeded his father, Prince Rainier III, in
2005. In October, Albert is coming to London to open a spanking new Maison
de Monaco in Upper Grosvenor Street. The aim is to give advice and help to
natives who are thinking of taking up residence in Monaco – the number of
British in Monaco has doubled over the past 10 years, and there are now
2,025 of them, well over twice as many as any other group of tax exiles.
Albert wants more. “The residential aspect is really important for us,” says
Evelyne Genta, the new Monegasque consul-general. “We are very keen to
increase the number of British. We particularly want to attract younger,
dynamic people, in their thirties and early forties, with young families,
who see Monaco as a good place to work and set up businesses.”
It might be thought that Monaco sells itself. It is, after all, a place with
no income tax, no wealth tax, no capital-gains tax, and no inheritance tax
between parents and children (unless you are French, in which case, thanks
to pressure from General de Gaulle in 1963, you are uniquely liable to pay
all the taxes you would at home). Albert, though, is keen to play up its
non-fiscal charms. He wants to shake off its image as a “sunny place for
shady people” and to bring in British and other foreign residents who are in
mid-career in place of retirees, who are often seen, as Genta puts it, as
“old people who go there to hide their money”. Old-money Brits, and old
showbiz stars like Roger Moore, Ringo Starr and Shirley Bassey, are giving
way to hedge-fund managers and e-commerce tycoons.
The prince says he is fed up with having his country portrayed as “a haven for
scoundrels”. Its role as a sanctuary for crooks, gamblers and dirty money
was always rather overdone, notably by politicians over the border in
France. The days when it needed the famous casino to keep afloat are long
gone, and it has just 63 Russian residents, scant evidence of the arrival of
a new breed of mafiosi. But there have been damning comments by those in a
position to know what has gone on. “Here, money has no smell and the justice
system is blocked at every level to better protect the rich investors who
are behind the fortune and prestige of this princedom,” claimed Charles
Duchaine, an investigating magistrate in Monaco until 1999. “Monaco’s
obsession is to preserve an image of respectability.” It appeared on the
list of “uncooperative tax havens” drawn up by the Organisation for Economic
Co-operation and Development, and it hurt.
“We must absolutely free ourselves of this equation of Monaco and
money-laundering,” Albert says, admitting that it might have “lacked
vigilance” in the past. He pledged to “put ethics and morality at the heart
of Monaco” in his inaugural address. “Ethics cannot be chopped and changed,”
he says. “Money and virtue must go together permanently.” Hence the drive to
import the British. Not any old Brit. That was made clear last year when Sir
Mark Thatcher was refused residency. Albert wants the sort who have no form
– he says Monaco has no time for “people who have had doings with illicit
activities”, and Thatcher had a conviction from a South African court for
plotting a coup in Equatorial Guinea – and lots of clean money.
The war on terror, and on arms and drug trafficking, means that the 50-odd
banks in Monaco – even Coutts, the Queen’s bank, has set up shop – are
coming under real pressure from the authorities to track dirty money. More
than most, the British can usually show their money is legitimate and hasn’t
arrived in a suitcase. Typically it comes from selling a business or
property, from City bonuses and broking, and it goes with the sort of
financial and management skills that Albert feels would benefit Monaco.
More people in Britain fit his bill than anywhere else in Europe. Mere
millionaires – booming house prices have swollen their number to almost half
a million – no longer count. Most of their money would be swallowed up by
simply finding a shoe box to live in if they moved here. What matters are
liquid assets: stocks, bonds and other assets that can be swiftly turned
into cash. Britain has an estimated 135,000 “ultra-HNWs”,
ultra-high-net-worth people with liquid assets averaging £6m-plus. They fall
within Albert’s sights. And so, of course, do the super-rich, the 1,000
wealthiest people in Britain, with an average fortune of £70m apiece.
The last decade, particularly the past five years, have been kind to rich
Brits. Liquid assets across the country are estimated to have risen from
£1,000 billion to almost £1,600 billion between 2000 and 2006. The assets of
the mega-rich soared by 79% over the period. They have lots of incentive to
move abroad: the top rate of income tax in Britain, 40%, may be reasonable
in EU terms, but it bears no comparison with Monaco’s 0%. When other nasties
like national insurance are added, the British resident who successfully
moves here doubles his disposable income.
Note a caveat here, in the use of “the British resident”. The foreign resident
in Britain – say, Lakshmi Mittal, the Indian steel tycoon – has little
reason to move. He is almost as privileged in tax terms in London – all
offshore income is exempt from tax unless remitted to the UK – as the Brit
is in Monaco. Note, too, the reference to “successfully” becoming
non-resident. It looks easy. Book a removals van and a flight to Nice (17 a
day from Britain, with Easyjet for the thrifty and for pals of the founder
and Monaco resident Sir Stelios Haji-Ionnou) with an onward seat to Monaco
on the helicopter shuttle. Bingo! But it isn’t. Those two cases – Captain
Shepherd vs HMRC, and Robert Gaines-Cooper vs HMRC – both went in favour of
HM Revenue and Customs. Some of the best-paid legal minds in the land are
pondering the implications.
That said, the love affair between the rich and Monaco has never been
stronger. “The number of non-residents has gone up sharply, enormously,”
says Philip Beresford, compiler of The Sunday Times Rich List. “Going abroad
is becoming the topic of conversation. A lot of people have made an awful
lot of money over the past 10 years, from buyouts, performance incentives,
the recovery in dotcoms, venture capital, hedge funds, all the City things.
Now they see lean years coming. They want to be gone before unpleasant
things start happening, or the rules change.”
Two-thirds of the 68 billionaires in the Rich List are either “non-doms” or
“non-res”. The first are foreigners who are resident in Britain, but who
benefit from being classified as “non-domiciled” for tax purposes. This
means they are only liable for UK tax on their income in Britain. They are
exempt from tax on income from foreign investments, as long as it is not
remitted to the UK. “In its way, London is as much a tax haven as Monaco,”
says Beresford, “provided you aren’t British, of course.” The second
category, the “non-res”, are native British who pay fewer or no UK taxes
because they are non-resident in Britain. They are still liable to tax on
income that arises from investments, property or employment in the UK. But
if they switch employment and investments abroad, they are home free. A big
proportion go to Monaco.
It isn’t, technically, a tax haven: it levies Vat and corporate taxes. But it
is within easy striking distance of Britain, has much better weather than
its Channel Island rivals (which have income tax, too, albeit at 20%) and is
much more glamorous. Sir Philip Green, the store magnate, has the highest
profile of the Monaco Brits. In his case, it is his wife who is the
“non-res” and chief dividend beneficiary – but he was the first to show that
an executive jet and instant modern communications mean that a buccaneering
business career is no longer incompatible with a social life on the
vertiginous slopes of a Mediterranean rock. “Monaco’s got Alan Murphy, too,
‘the bog-roll king of Skelmersdale’, with £200m based on toilet paper,” says
Beresford, “the Cornish property developer Kevin Heaney, and Jeremy Agace,
the ex-estate agent, and Jonathan Green, the hedge-fund manager, and Nigel
Robertson, grandson of the founder of Austin Reed, and John Hargreaves, the
Matalan discount retailer, and… lots more.”
The pick-up in the number of Brits moving here is noted by Trevor Gabriel, an
old Monaco hand who runs Monaco Villas. “The British influx is a major
reason why the property market is so buoyant,” he says. “Inquiries are
streaming in. They tend to be much younger than before, still in mid-career
and very active, often families with young children.” Peter Brigham of the
accountants Moore Stephens specialises in estate and tax planning for
private businesses and the families that own them. “Twenty years ago, you
still had the landed gentry and old money coming down here to retire,” he
says. “Today, it’s highly mobile business executives and the like. It
reflects where the wealth has been growing in the UK.”
One survey this year found Monaco to be easily the world’s most expensive
residential address, with a price per square foot almost 40% higher than
central London. Another study claims London has overtaken it, with some
parts of Belgravia reaching £4,000 a square foot, against £2,190 in Monaco
(and New York and Tokyo at £1,600). Whatever the comparison between the two,
the rich will certainly find Monaco to be reassuringly expensive. A
225-square-foot studio flat with a small terrace in a block on reclaimed
land at Fontvieille – parking space, use of a communal swimming pool, and
the racing driver David Coulthard as a near neighbour, but no sea view – is
on the market for £484,000. Fork out £16,820,000 and you get the keys to the
triplex penthouse atop the same block. It comes with five bedrooms, four
bathrooms, and sea and harbour views.
Rainier was known as the prince bâtisseur during his long reign. The Grimaldis
lost half their land 150 years ago. Their subjects in Menton and Roquebrune
were seduced by the revolutionary fervour that swept Europe in 1848. They
seceded from the principality and then joined France, an act of fiscal folly
still rued by their taxpaying descendants. The “builder prince” compensated
by reclaiming every inch he could from the sea and building on it. He
inherited 150 hectares in 1949, and left Albert 195. To wrest more, Albert
has had to go offshore at Fontvieille. The last big project was to drive
railway lines through tunnels in the rock to a new multi-level station,
freeing the old tracks for housing. He now plans to add 25 acres to Monaco’s
surface area by building shops, restaurants and luxury apartments for 4,000
people on platforms several metres above the sea. A keen environmentalist,
he insists that marine life won’t be affected by the project.
“Even with the development, Monaco will still have fewer than 40,000
residents,” says Gabriel. “Lack of space alone means it is always going to
be a very exclusive place.” That, apart from tax, is one of its great
attractions. It is small and intimate but packs a big punch. It has its own
flag, passports, postage stamps, national anthem, and elected national
council. It has its own judiciary and a (French-run) police force. There are
medical specialists, yacht and executive-jet brokers, grand hotels and
restaurants.
But most of Monaco is tucked up in bed well before 11pm. Albert, and his
wild-child sisters, Caroline and Stephanie, have reached respectable middle
age. Albert’s love child, and his sisters’ affairs and marriages with a
brace of bodyguards and a circus acrobat, are old hat now. The magazine
Paris Match, which devoted 100 covers to Caroline and 67 to Stephanie, has
had to look elsewhere. In winter, especially, many are pulled to the
livelier fleshpots a few minutes away over the border, though those who
bought houses in St-Jean-Cap-Ferrat or as far west as St Tropez, and spend
most of their time there, have fallen foul of the French taxman.
And Monaco sports an orchestra, an opera house, a ballet, a radio and
television station, and a Champions League-quality football club.
Super-yachts are shoehorned into the port in summer. In winter, skiing is
just 40 miles away. Albert is sportif, and courses in sailing, swimming,
diving, tennis, archery and much else are held in the school holidays.
Children from 3 to 18 are catered for at a bilingual International School,
with several British staff. It opened a dozen years ago, and goes through to
the international baccalaureate, now accepted by many British universities.
The fees go up to £11,500, expensive for a day school, but a snip compared
with a British boarding school. Monaco is deeply conservative and Catholic
in its civic morals. So much so that eyebrows were raised when a Monegasque
delegation to the UN Human Rights Committee confirmed that husbands were
vested with parental authority as “heads of the family”, divorce by mutual
consent did not exist, and abortion was a criminal offence. For all Albert’s
love children, and his sisters’ husbands and lovers, Archbishop Bernard
Barsi is a power in the land. The clergy are paid from the national budget,
and religious teaching is part of the school curriculum. In the spring, the
government threw out a draft law to decriminalise abortion. It rejects, too,
any change in the law that would make divorce “an anodyne event” or might
encourage mariage jetable, disposable matrimony.
In practice, this is less onerous than it sounds. Foreign nationals living in
Monaco are subject to their own national laws. The French or British can divorce
by mutual consent, even if, for the moment at least, a Monegasque couple
can’t. A draft law will allow for easier divorce – by consent, after three
years’ separation – if it gets through. Easier, but not cheaper. It can be
just as costly to dump the missus in Monaco as at home.
As to money itself, it should be as safe with the Monaco branch of a big bank
as it would be in London. Although two small private banks have gone bust in
the principality over the past decade or so.
In the highest-profile fraud case, Stephen Troth, a banker with HSBC in
Monaco, was convicted of removing £12m from clients’ accounts, mainly
entertainment and sports stars, including Michael Schumacher. “There are bad
hats everywhere, and the client of a big bank won’t have to stand the loss
anyway,” says a Monaco financial adviser. “Be prudent, and Monaco won’t bite
you.”
Physically the place is impeccably clean. At night, the sound of predatory
birds is played through hidden loudspeakers in the main square so that
sparrows do not soil the casino’s famous lawn. Every morning, gardeners
remove dying petals from the flowerbeds. Morally, too – at least in public.
No soft porn is on display in the news kiosks, no topless girls frolic by
the sea, no shirtless youths get drunk or spray graffiti in the streets. It
is very, very safe, with more than one policeman for every 100 people, and
an abundance of security cameras. True, the murder rate shot up from its
usual 0 to 3.3 per 100,000 in 2001 – but that represents just one killing,
and it went straight back to nought. Theft is low, despite the parade of
expensive jewellery, handbags and cars through the streets, and violent
crime minimal. On a crime and health basis, the travel expert Laura McKenzie
rates it the safest tourist destination on Earth (with New Zealand and Malta
as runners-up).
The dynamics of wealthy families are changing. They are getting younger, and
young families with children cannot flit around. They need to base
themselves in a single place. The security, the high health standards, the
schooling and the sports all make Monaco attractive. So does the
ever-swelling quest for family privacy. In a place where the rich are thick
on the ground, the individual excites little interest.
It seemed, too, that people could continue to work in Britain for three or
four days a week and still retain Monaco status – provided the 90-day rule
was copper-bottomed and days of travel didn’t count. The two rulings have
blown holes in that. First up was Captain Shepherd, a long-haul pilot with
British Airways. He claimed to have left Britain and set up home in Cyprus.
In fact, he spent less time there than he did in Britain, because his
flights originated at Gatwick and Heathrow, and he was commuting to work
from Cyprus. IR20, HMRC’s booklet on residence, ignores arrival and
departure days. On that basis, though, he was safely within the 90 days.
Alas for Shepherd, IR20 turned out to be mere guidance. The special
commissioner who heard the case found that, since the captain had only left
for “occasional residence” abroad, he was still a UK resident.
Worse followed. Robert Gaines-Cooper is a highly successful Reading-born
entrepreneur who began with a jukebox business in England in the 1960s. He
lived in California for a time, though he still had property in Britain and
the Seychelles, from where his second wife came. He spent most of the 1970s
in the Seychelles, but less thereafter. In the 1990s, if the days of
departure and arrival were ignored, he kept just under the 90-day limit,
allowing extra time for a heart-bypass operation and the birth of his son.
Gaines-Cooper claimed that he was domiciled in the Seychelles and
non-resident in the UK. The commissioners ruled that he was not a “non-dom”.
To change domicile, they said, required a “clear and unequivocal” intention
to “reject” England. Gaines-Cooper had not done so, they found, because
among other things he was a member of the Rolls-Royce enthusiasts’ club, had
put his son down for Eton, and liked pheasant-shooting and going to Ascot.
Nor, they said, was he non-resident. Because of the pattern of his visits,
they calculated the nights he had spent in the UK – introducing what nervous
tax exiles call “the Cinderella rule” – rather than allowing him free days
of arrival and departure. The bullet points listed by one firm of taxation
experts are chilling for Monaco’s millionaires: “- Shepherd problems made
worse by Gaines-Cooper; -Domicile of choice lost by reconnecting with
domicile of origin; -Count nights rather than days under IR20”.
The panic is such that HMRC issued a Brief saying that nothing has changed,
and IR20 still stands. Gaines-Cooper, it said, was irrelevant. It was simply
found that, regarding his “lifestyle” and the amount of time spent in the UK
and overseas, “Mr Gaines-Cooper did not leave the UK”, and so the 90-day
limit “did not apply”.
But it is precisely the “lifestyle” test – vague but potentially catch-all –
that is sending shock waves through the Monaco tax exiles. “We’re going to
have to rethink conventional wisdom,” says Maurice Fitzpatrick, a senior
manager at Grant Thornton. “Lifestyles develop along certain tramlines. From
now on, those tramlines are going to have to be very carefully laid.”
Monaco's richest Brits
The top 10 British tycoons who helped to swell the ranks of Monaco's elite
1 Sir Philip Green/Retail
Green made his name as a discount retailer in the 1980s. Now boss of the
Arcadia Group and worth about £5 billion, he and his wife, Lady Tina, fly in
at weekends.
2 Lord Laidlaw/Event organising
Made his fortune from organising conferences. He owns two yachts, a jet and
six vintage cars, including a 1937 Maserati that he races around Monte
Carlo.
3 John Hargreaves/Retail
Matalan founder and chairman, John Hargreaves, took control again of his
discount retailing empire before Christmas last year. A former market
trader, he keeps a low profile.
4 Dr Leonard Polonsky/Insurance
Born in New York, Dr Leonard Polonsky is now a British citizen based in
Monaco. He attended New York University, Oxford, the Sorbonne, and the Jung
Institute in Zurich before making his fortune in insurance.
5 Jonathan Green/Banking
Green was a co-founder of the GLG hedge fund group, leaving in 2003. A former
merchant banker, he is also a donor to the Tories. Now worth about £200m.
6 Alan Murphy/Property
A property magnate who’s fanatical about Liverpool Football Club. His company,
Nikal, is fast expanding in the north. He is worth about £200m.
7 Kevin Heaney/Property
A London property developer, he moved to Cornwall in 2001. His Cornish
property and European assets are valued at £24m. He commutes to Monaco.
8 Gordon Crawford/Technology
One of 12 tycoons who famously lent money to the Labour party. In his case it
was a £500,000 loan. Crawford made £76m from the sale of the quoted London
Bridge Software operation.
9 Jeremy Agace/Property
Agace made his money from the merger of his Mann & Co estate agency. He
keeps a low profile in Monaco but enjoys racing classic Ferraris. As a tax
exile, his wealth and other assets will have grown to perhaps £70m.
10 Richard Farleigh/Finance
A former interest-rate and currency trader, he now backs new ventures in
Britain, such as the Home House club.
Monaco and its shady past
Where’s there’s money there’s corruption: some of the scandals that have
rocked the principality’s reputation
October 2006 Langbar International began legal proceedings against its
founder and former executive, Mariusz Rybak. The Monaco businessman is
accused of defrauding £350m from investors, some of whom had sunk their life
savings into the company. The new chairman has tried to have his assets
frozen — including properties in Canada and Europe.
March 2005 The Scottish football agent Willie McKay, based in Monaco,
was investigated by the French fraud squad for tax evasion through transfers
of £30m between Switzerland, France and Monaco in player deals. He denied
any wrongdoing.
November 2004 British expats Christopher Stephenson and his wife,
Angela, were discovered shot dead in their £5m apartment in Sun Tower,
overlooking Monte Carlo casino. Police concluded that, following a row over
money troubles, Stephenson shot his wife and then committed suicide; but
friends have disputed this. The 65-year-old was linked to business deals
with the Russian embassy and had warned his solicitor: ‘We have, to say the
least, upset the Russians — so if I end in a hail of bullets, you know the
reason why.’
August 2001 Stephen Troth, HSBC’s leading banker in Monaco, was
arrested after stealing £12m from his clients, including £6.6m from Michael
Schumacher, a friend, to buy fast cars and villas. He was sentenced to four
years’ imprisonment but released after two. At his trial he said: ‘I got
divorced, I was overworked, I lost touch with reality.’
June 2000 An official report by the French government embarrassed
Monaco authorities by accusing them of being conducive to and ‘complicit’ in
drug and mafia money-laundering The report criticised the secretive banking
system in Monaco, which has 300,000 bank accounts for 30,000 people, and
described the famous Monte Carlo casino as ‘out of control’. Previous
attempts to investigate banking in Monaco had been blocked — Prince Rainier
himself is alleged to have intervened on one occasion.
December 1999 The English billionaire banker and Parkinson’s sufferer
Edmond Safra died in a fire at his penthouse in Monaco. His nurse, Ted
Maher, was found guilty of starting the blaze and jailed for 10 years in
2002. The former Green Beret commando first claimed that intruders started
the fire, and stabbed him in the leg and side, but later admitted that he
had stabbed himself and started the fire to set off an alarm and summon
help, so he could appear the hero in defending his employer. Safra’s wife,
Lily, is a friend of the Duchess of Cornwall and now lives in London.
