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 about his tax affairs.
The multi-million pound loans helped Zahawi and his wife buy properties across the UK, including retail and commercial premises in London, Birmingham, Brighton and Walton-on-Thames in Surrey.
The Observer found that new loans to property firm Zahawi and Zahawi were reported in the same year that an offshore family company linked to the Chancellor sold stakes in YouGov, the polling firm he founded, transferring £26m to unknown recipient or recipients.
A source close to Zahawi insisted there was no link between the money transferred by the offshore firm Balshore Investments and the unsecured loans to his family property firm Zahawi and Zahawi.
A spokesman said: “Nadeem and his wife have never been beneficiaries of any offshore trusts.”
The chancellor has been embroiled in growing controversy after the Observer revealed last week that a “flag” had been raised by officials about his financial affairs. He is facing calls to identify the lender or lenders who helped finance his property firm.
Mr Zahawi, who was eliminated from the Conservative leadership race on Wednesday, said last week he had always paid his tax and was ready to answer any questions following reports he was being investigated by HMRC. The chancellor said he had not been informed and was not aware of any investigation.
Zahawi, 55, built his career as a businessman by co-founding the polling and market research firm YouGov in 2000. However, tax experts are baffled as to why he was not initially given any shares in the firm despite being one of its driving forces .
While YouGov co-founder Stefan Shakespeare received 351,590 shares in the year the firm was founded, Zahawi received none. Instead, the shares were allocated to Balshore Investments, an offshore firm based in Gibraltar controlled by his parents. Zahawi reportedly relies heavily on the support and guidance of his father, who is a seasoned businessman.
The shares in YouGov were allocated to Gibraltar-based Balshore Investments. Photo: Tim Rooke/Rex/Shutterstock
The small company in Gibraltar has turned out to be a corporate gold mine as YouGov’s shares have soared. In 2002, the firm had assets of just £36,280, but this had grown to £7m by 2010 and £26.5m by 2017, according to the company’s accounts. It also received more than £700,000 in dividends between 2012 and 2017.
The key assets were shares in YouGov, but these were sold in 2017-18 and around £26m was transferred from the company to an unknown recipient or recipients. YouGov describes Balshore Investment as “the family trust of Nadhim Zahawi”. The chancellor insisted that “he has no and never has had an interest in Balshore Investments and 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 director of YouGov until 2010, when he was elected as a Conservative MP.
Zahawi and Zahawi were incorporated in 2010 and used unsecured loans in addition to bank debt to buy properties. Its borrowings have grown 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 stepped 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 Needle, founder of the nonprofit Tax Policy Associates, said Zahawi should provide more information about the source and repayment arrangements of the loans that financed his family’s real estate firm. “The chancellor is ultimately responsible for the UK tax code,” Needle commented last week in an analysis of the Zahawi family’s business interests. “The public has a right to know whether there are specific and vague provisions in this code that the chancellor can personally take advantage of.”
MP Pat McFadden, Labour’s shadow chief secretary to the Treasury, said: “It is vital that the Chancellor sets out exactly what arrangements he has made use of in his financial affairs and where this money was borrowed from.
“The public has a right to know. Labor would remove foreigner status to create more fairness and transparency in the tax system.’
Zahawi was eliminated from the Conservative Party leadership campaign last week after receiving 25 votes in the parliamentary party election. During his campaign, he promised that he would publish his tax return every 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 taxes through offshore structures is false.
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