Chancellor Nadhim Zahawi is under pressure to explain the source of £26million in unsecured loans reported by his family property firm in 2018 as he faces questions about his tax affairs.
The millions in loans helped Zahawi and his wife buy property across the UK, including commercial and retail properties in London, Birmingham, Brighton and Walton-on-Thames in Surrey.
That observer has found that new loans to property firm Zahawi and Zahawi were reported in the same year as an offshore family business linked to the Chancellor sold shares in YouGov, the polling firm he founded, transferring £26m to one or more unknown recipients.
A source close to Zahawi insisted there was no link between the money, which was transferred from offshore firm Balshore Investments, and the unsecured loans to his family’s real estate firm, Zahawi and Zahawi.
A spokesman said: “Nadhim and his wife have never been beneficiaries of offshore trust structures.”
The chancellor is then embroiled in a growing controversy observer announced last week that officials had raised a “flag” over his financial affairs. He faces calls to identify the lender or lenders who helped fund his real estate business.
Zahawi, who dropped out of the race for the Conservative Party leadership on Wednesday, said last week he has always paid his taxes and is ready to answer any questions after he was reportedly investigated by HMRC. The Chancellor said he had not been informed of any investigation and knew nothing about it.
Zahawi, 55, began his business career by co-founding the opinion and research firm YouGov in 2000. But tax experts are baffled as to why he wasn’t initially allotted shares in the company, even though he was one of its driving forces.
While YouGov co-founder Stephan Shakespeare was awarded 351,590 shares in its founding year, Zahawi received none. Instead, shares in the Gibraltar-based offshore firm Balshore Investments, controlled by his parents, were allotted. It has been reported that Zahawi relied heavily on the support and guidance of his father, who was a seasoned businessman.
The small Gibraltar firm turned out to be a corporate gold mine as YouGov shares rose dramatically in value. In 2002, the company had assets of just £36,280, but this grew to £7 million by 2010 and £26.5 million by 2017, according to the company’s balance sheet. The company also received more than £700,000 in dividends between 2012 and 2017.
The main assets were shares in YouGov, but these were sold in 2017-18 and around £26m was transferred from the company to one or more unknown recipients. YouGov has described Balshore Investment as “the family trust of Nadhim Zahawi”. The Chancellor has insisted “that he has and never had any interest in Balshore Investments and is not a beneficiary”.
YouGov built its reputation on internet-based research, listing on the London Stock Exchange’s AIM market in 2005. Zahawi was chief executive and director of YouGov until 2010, when he was elected Conservative MP.
Founded in 2010, Zahawi and Zahawi used unsecured loans in addition to bank debt to purchase real estate. Borrowing increased from £185,831 in 2015 to almost £40m in June 2018, including £11.4m in bank loans and £26.6m in unsecured loans. The Chancellor resigned as a director of the firm in 2018 and his wife now controls the company. His investment property is valued at £58m and current liabilities are £55.5m.
Dan Neidle, founder of the nonprofit Tax Policy Associates, said Zahawi should provide more information about the source and repayment terms of the loans that funded his family business. “The Chancellor is ultimately responsible for UK tax law,” Neidle commented last week in an analysis of the Zahawi family’s commercial interests. “The public has a right to know if there are specific and obscure provisions of this code that benefit the Chancellor personally.”
Pat McFadden MP, the Labor Party’s shadow chief secretary at the Treasury, said: “It is important for the Chancellor to make it clear exactly what financial arrangements he has made and where this money has been borrowed from.
“The public has a right to know. Labor would abolish non-dom status to bring more fairness and transparency to the tax system.”
Zahawi was eliminated from the Conservative Party’s campaign last week after winning 25 votes in the general election. He promised during his campaign that he would publish his tax return every year when he became prime minister.
A spokesman for Nadhim Zahawi said: “Nadhim and his wife have never been beneficiaries of offshore trust structures and have not held any property through offshore tax structures. Any suggestion that Nadhim avoided taxes through offshore structures is wrong.”