Chancellor Nadhim Zahawi is under pressure to explain the source of £26million in unsecured loans reported by his family property company in 2018 as he faces questions over his tax affairs.
The millions of pounds in loans have 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 established that new loans to property company Zahawi and Zahawi were reported in the same year that an offshore family company linked to the Chancellor sold shares in YouGov, the polling company he founded, transferring £26million sterling to one or more unknown recipients.
A source close to Zahawi insisted there was no connection between the money transferred out of the offshore company, Balshore Investments, and the unsecured loans to his family real estate company, Zahawi and Zahawi.
A spokesperson said: “Nadhim and his wife have never been beneficiaries of any offshore trust structure.”
The Chancellor is embroiled in growing controversy after the Observer revealed last week that a “flag” had been raised by officials over his financial affairs. He faces calls to identify the lender or lenders who helped fund his real estate company.
Zahawi, who was knocked out of the Conservative Party leadership race on Wednesday, said last week he was still paying his taxes and was ready to answer any questions after reporting he was doing the under investigation by HMRC. The Chancellor said he had not been briefed and was unaware of any investigation.
Zahawi, 55, forged his career as a businessman by co-founding polling and market research firm YouGov in 2000. Tax experts, however, are baffled by why he initially did not been allocated shares in the company, when he was one of its driving forces.
While YouGov co-founder Stephan Shakespeare received 351,590 shares in the year the company was founded, Zahawi received none. Instead, shares were allocated to Gibraltar-based offshore company Balshore Investments, 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.
Gibraltar’s small business turned out to be a money-spinner as YouGov’s share value rose significantly. In 2002 the business had assets of just £36,280, but these rose to £7million in 2010 and £26.5million in 2017, according to his company’s accounts. He also received over £700,000 in dividends between 2012 and 2017.
The main assets were YouGov shares, but these were sold in 2017-18 and around £26m was transferred out of the company to one or more unknown recipients. YouGov described Balshore Investment as “a family trust of Nadhim Zahawi”. The Chancellor insisted that “he does not have, and has never had, an interest in Balshore Investments and is not a beneficiary thereof”.
YouGov built its reputation on internet research, floating on the London Stock Exchange’s AIM market in 2005. Zahawi served as chief executive and trustee of YouGov until 2010, when he was elected a Conservative MP.
Zahawi and Zahawi was incorporated in 2010 and used unsecured loans in addition to bank debt to purchase properties. Its borrowings have risen from £185,831 in 2015 to nearly £40m in June 2018, including £11.4m in bank loans and £26.6m in unsecured loans. The Chancellor resigned as a director of the company 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 nonprofit Tax Policy Associates, said Zahawi should provide more information about the source and repayment terms of the loans that funded his family real estate company. “The Chancellor is ultimately responsible for the UK tax code,” Neidle commented last week in an analysis of the business interests of the Zahawi family. “The public has a right to know if there are specific and obscure provisions of this code from which the Chancellor personally benefits.”
MP Pat McFadden, Labour’s shadow chief secretary to the Treasury, said: ‘It is essential 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.
“The public has a right to know. Labor 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 winning 25 votes in parliamentary elections. He pledged during his campaign to release 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 avoided the tax through offshore structures is wrong.