Property London tax haven British Virgin Islands
A lot of London property is owned through offshore structures, such as investment trusts, based in tax havensReuters

Two of the tax havens at the centre of the Panama Papers are among the largest sources of foreign investment in the UK property market. The Panama Papers are 11 million documents leaked from Mossack Fonseca, a law firm specialising in helping the wealthy operate offshore. The leak exposes the offshore tax dealings of a number of world leaders, their families and associates.

Both the British Virgin Islands and Panama are the two most popular tax havens used by Mossack Fonseca on behalf of its clients, according to the leaked data, which was revealed by the International Consortium of Investigative Journalists (ICIJ). Mossack Fonseca is the world's fourth biggest provider of offshore services. Company director Ramon Fonseca has denied any wrongdoing. He said the firm had suffered a hack on its database and described the leak as "an international campaign against privacy", according to Reuters. Tax avoidance is legal.

The British Virgin Islands is also the largest single source of foreign ownership of UK property. There are 22,814 buildings in the UK with ownership stemming from this Caribbean tax haven alone, according to Land Registry figures, compiled by the Estates Gazette. Panama is eighth on the list at 2,039 buildings in the UK. The top 10 is dominated by tax havens, including Guernsey, Luxembourg and the Isle of Man.

Richard Murphy of Tax Research UK, which campaigns against tax avoidance, said the British Virgin Islands is the largest supplier of offshore companies in the world, estimated to host between 400,000 and 800,000 firms, though the exact number is unclear. "It's not surprising it's the biggest owner," Murphy told IBTimes UK. "It's virtually unregulated."

Most of this offshore investment ends up in London. The city's property is seen by wealthy foreign investors as a "safe haven" for their capital. As well as offering decent returns, their wealth can be parked in the relative security of a liberal democracy, sheltered from global political and economic turmoil. It also has a number of personal attractions for the world's rich elite, such as access to culture and excellent schools.

Investors use offshore shell companies and trusts to buy property, avoiding swathes of tax in the process. Chancellor George Osborne has sought to crack down on tax avoidance in property with the Annual Tax on Enveloped Dwellings, a yearly levy on properties owned by offshore entities, such as trusts. Moreover, from June 2016 there will be a public register of the beneficial owners of companies, including those incorporated offshore, in a bid for greater transparency.

Offshore developers of property in the UK who export profits to dodge tax will be targeted under new anti-avoidance legislation, it was revealed Osborne's 2016 Budget. The government will introduce legislation in the Finance Bill 2016 "to ensure offshore structures cannot be used to avoid UK tax on profits that are generated from developing UK property".

Moreover, HM Revenue & Customs (HMRC) will set up a new task force dedicated to rooting out offshore property developers. Around 100 residential property developments in the UK have so far been branded "high risk" by the tax office.

Murphy of Tax Research UK said what the public wants to know is who owns each offshore company. "In my opinion, if a company from outside the UK — at the moment we think there's about 94,000 — owns property in the UK, then that company should file accounts in this country as if it was incorporated here," he said.

"File a tax return as if it was incorporated here. File details of its beneficial ownership as if it was incorporated here. In other words, it should have to be treated as a British company. And if it doesn't do any of those things, then the land and the property it owns should be passed to the crown."