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London (Firms) in HNW

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London (Firms) Overview

Contributed by Payne Hicks Beach


Brexit and Political Uncertainty 

The result of the June 2016 Brexit Referendum represented a seismic shift in the UK's position in the world, and how private wealth is structured for those who live in and/or have assets in the UK. At the time of writing (the morning after the June 2017 general election) we are no closer to knowing what Brexit actually means. Whoever does end up negotiating the terms of Brexit, from a tax perspective there is likely to be little discernible difference come March 2019 as direct taxes have always been "within the competence of individual Member States." However, there are some important parts of the UK direct tax code which have been altered as a direct result of EU membership, such as the taxation of offshore trusts. How those EU-inspired alterations to the tax code will be changed, if at all, post March 2019, and whether this is to the benefit or disadvantage of the holders of private wealth will be determined by politics. The clear message is that once again politics is a dynamic force that can seriously affect your wealth; planning needs to be sufficiently flexible to deal with political uncertainty.

Non-doms and the 2017 Finance Bill that never was 

A prime example of unwanted political uncertainty was the announcement in July 2015 of substantial changes to the taxation of UK resident non-domiciled: the end of the remittance basis for those who have been in the UK for more than 15 years, a radical overhaul of the taxation of offshore trusts and the bringing into the UK Inheritance Tax net the value of UK residential property owned by offshore companies. These changes were to come into effect from 6 April 2017 and many non-doms carried out extensive restructuring of their wealth before the well-publicised April deadline. Then on 25 April 2017, after the 6 April 2017 deadline, a snap election was called with the result that vast swathes of the Finance Bill were dropped, including all of the above changes to the taxation of non-doms. This has left many holders of private wealth in limbo with uncertainty as to their tax position. Many offshore companies holding UK residential property were unwound (known as 'de-enveloping'), the only silver lining at the super-prime property level being that with the decline in prices since 2013 the Annual Tax on Enveloped Properties cost of de-enveloping was often minimal or nil. It is possible, but by no means guaranteed, that the above changes to the taxation of non-doms and their UK assets will be brought into UK law at some point in 2017. If the UK is to remain a centre for the structuring of international private wealth the legislative uncertainty described above must be avoided in future.

The rise of Disclosure and the decline of Privacy 

Total privacy regarding wealth is now a thing of the past. With the introduction of the Common Reporting Standard (CRS), fiscal authorities around the world will receive unprecedented amounts of information on private wealth and its holders. Even for the well-advised and tax-compliant individual there will be a rise in tax authorities around the world starting investigations, which can be expensive and time-consuming. It is vital that CRS reporting is done properly to avoid unwanted and unnecessary attention from governments. The UK is also implementing the EU 4th Money Laundering Directive, which will mean more information being disclosed regarding trust interests. The issue of greater concern for holders of private wealth is that information will not only be disclosed to tax authorities but will also be available on publicly-accessible registers. The UK has already introduced the publicly accessible Persons with Significant Control (PSC) register which means that unless there are demonstrable and credible threats to personal security it is not possible to have total privacy of the ownership of UK companies. Another cause of anxiety is the proposed introduction of a register of offshore companies owning UK residential property, closely modelled on the PSC register, as this would link an individual's UK homes with a publicly-accessible register. There is strong lobbying for greater privacy in this most sensitive area. Another concern is the use of Data Protection legislation to demand information, albeit of a limited nature, from the London solicitors to offshore trustees as occurred in the Dawson-Damer case. Advice to private wealth holders is no longer just about tax and succession planning, but about disclosure planning as well.

Holders of private wealth should also not expect that their legal disputes/private applications to the court will be held privately or their judgments anonymised. Peter Andre (a pop star) recently found this out to his detriment, and there is an increasing trend in Variation of Trust Act applications (which are used to extend the lifetime of old English law trusts) not to anonymise judgments.

Longevity, dementia and the rise of 'hybrid families' and Will disputes

Thankfully we are all living longer, but with an increased risk of dementia. Makers of entrepreneurial wealth often procrastinate regarding their succession planning. A new problem has arisen of the holder of private wealth who is not capable of carrying out any succession planning due to losing their mental capacity. Effective planning must involve not just planning for death, but planning for dementia.

With the rise in dementia there is a parallel rise in the number of Will disputes. Such disputes are also more likely due to the rise of 'hybrid families', or families where individuals have had multiple relationships producing multiple children, which in turn multiplies the likelihood of a dispute post-death. The recent case of Illott v Mitson in the Supreme Court has provided some further clarity in this difficult area but a post-death dispute is never where a holder of private wealth wants to be. Prevention is better than cure, and if there are any simmering resentments in wealthy families then advice should be taken about how to mitigate, or hopefully avoid, any problems post-death while the relevant individuals are still alive and have mental capacity.

Challenging times for private wealth 

The current challenges confronting the holders of private wealth are unrecognisable from the challenges of a generation ago. Privacy is no longer assured, families are more complicated and the tax landscape continues to change with every passing year. What has not changed is that the well-advised client, who has flexibility built into their succession and tax planning, will be most able to weather the storms that will inevitably come. The purpose of the succeeding pages of this guide is to enable the holders of private wealth to choose suitable and effective advisers.