The chancellor Nadhim Zahawi is under pressure to explain the source of £26m of unsecured loans reported by his family property firm in 2018 as he faces questions over his tax affairs.
The millions of pounds of loans helped Zahawi and his wife buy properties across Britain, including commercial and retail premises in London, Birmingham, Brighton and Walton-on-Thames in Surrey.
The Observer has established that new loans to the property firm Zahawi and Zahawi were reported in the same year that an offshore family company linked to the chancellor sold shares in YouGov, the polling firm he founded, transferring £26m to an unknown recipient or recipients.
A source close to Zahawi insisted there was no link between the money transferred out of the offshore firm, Balshore Investments, and the unsecured loans to his family property firm, Zahawi and Zahawi.
A spokesman said: “Nadhim and his wife have never been beneficiaries of any offshore trust structures.”
The chancellor is embroiled in a mounting controversy after the Observer revealed last week that a “flag” has been raised by officials over his financial affairs. He is facing calls to identify the lender or lenders who helped finance his property firm.
Zahawi, who was eliminated from the Conservative party leadership race on Wednesday, said last week he always paid his tax and he was ready to answer any questions after reports he was under investigation by HMRC. The chancellor has said he has not been informed of and is not aware of any investigation.
Zahawi, 55, forged his career as a businessman by co-founding the polling and market research firm YouGov in 2000. Tax experts are however baffled over why he was not initially allocated any shares in the firm, despite being one of its driving forces.
While the co-founder of YouGov Stephan Shakespeare was awarded 351,590 shares in the year the firm was founded, Zahawi was given none. Instead, shares were allocated to the offshore firm Balshore Investments, based in Gibraltar, controlled by his parents. It has been reported that Zahawi relied heavily on the support and guidance of his father who was an experienced businessman.
The small firm in Gibraltar turned out be a corporate goldmine, as YouGov shares rose dramatically in value. In 2002, the firm had assets of just £36,280, but this rose to £7m by 2010 and £26.5m by 2017, according to its company accounts. It also received more than £700,000 in dividends between 2012 and 2017.
The key assets were the shares in YouGov, but these were sold in 2017-18 and about £26m was transferred out of the company to an unknown recipient or recipients. YouGov has described Balshore Investment as “a family trust of Nadhim Zahawi”. The chancellor has insisted “he does not have, and never has had, an interest in Balshore Investments and he is not a beneficiary.”
YouGov built its reputation on internet-based research, floating on the AIM market of the London Stock Exchange in 2005.Zahawi was chief executive and a director of YouGov until 2010, when he was elected as a Conservative MP.
Zahawi and Zahawi was incorporated in 2010 and used unsecured loans on top of bank debt to buy properties. Its borrowings rose from £185,831 in 2015 to nearly £40m in June 2018, including £11.4m in banks loans and £26.6m in unsecured loans. The chancellor stood down as a director of the firm in 2018 and his wife now controls the company. Its investment properties are worth £58m, with current liabilities of £55.5m.
Dan Neidle, founder of the not-for-profit company Tax Policy Associates, said Zahawi should provide more information on the source and repayment arrangements of the loans which had funded his family property firm. “The chancellor is ultimately responsible for the UK tax code,” Neidle commented last week in an analysis of the commercial interests of the Zahawi family. “The public has a right to know if there are specific and obscure provisions of that code from which the chancellor personally benefits.”
Pat McFadden MP, Labour’s shadow chief secretary to the Treasury, said: “It is vital that the Chancellor makes it clear exactly what arrangements he has taken advantage of in his financial affairs and where this money has been borrowed from.
“The public has a right to know. Labour would abolish non-dom status to create more fairness and transparency in the tax system.”
Zahawi was eliminated from the Conservative party leadership campaign last week after getting 25 votes in the parliamentary party election. He pledged during his campaign that he would publish his tax return each year if he became prime minister.
A spokesperson for Nadhim Zahawi said: “Nadhim and his wife have never been beneficiaries of any offshore trust structures and have not held any property through offshore tax structures. Any suggestion that Nadhim has avoided tax through offshore structures is false.”
July 17, 2022 at 12:57PM Jon Ungoed-Thomas