UK: An Introduction to Private Wealth Law

Emerging trends in the tax and private client legal market – prepared by the Private Wealth Law team at Mishcon de Reya LLP

Introduction 

Despite the current political paralysis, the UK continues to prosper. Full employment, low inflation and rising wages are all positive indicators of a healthy domestic economy. Headline personal tax rates do remain high but there are plenty of tax reliefs and exemptions available. And despite recent tax and regulatory changes and the looming spectre of Brexit, the UK remains an attractive destination for those choosing to move here. Non-domiciled individuals who come to live in the UK will typically enjoy a privileged tax regime for their non-UK income and gains. This can legitimately result in little or no direct tax. Overseas assets can also be permanently protected from inheritance tax. Corporation tax rates are low and will reduce even further to just 17% in 2020. For this reason, many people, whether from the UK or abroad, are choosing to set up businesses in the UK.

Current trends 

Against this background, the private client professional legal market has been in rude health in recent years, with strong demand and limited supply. Nevertheless, there are challenges ahead. In particular, the domestic tax planning market could contract due to the introduction of both general and targeted anti-avoidance legislation, as well as a lack of appetite among some clients fearful of HMRC challenge and reputational damage born out of changing social and political attitudes to legal tax avoidance.

There could also be threats to the profitability of the traditional private client market, particularly at the lower end. This may come from the likely emergence of well-funded digital providers of certain high-volume routine documents aimed at the younger tech-savvy market. These new entrants will be able to provide a very polished offering at a lower price than traditional law firms charge.

Global regulatory and transparency issues are affecting the high-end private client market following the introduction of the Common Reporting Standard, the OECD’s global standard for the automatic exchange of information and the general global drive for greater transparency. This is becoming an increasing concern for clients with nothing to hide but with very legitimate reasons for wanting to preserve privacy.

Tax litigation is likely to be a theme of the next 12 months and beyond. With a government in need of cash, and with increased cross-border information flows and improved technology, HMRC are more likely than ever to spot non-compliance, or at least suspect it. This may be as a result of a taxpayer's genuine mistake, carelessness or deliberate action. The recent Requirement to Correct legislation is likely to result in heavily punitive penalties for those with historic compliance problems. Expect more tax inquiries and tax litigation.

Trust and succession disputes are on the rise and there is no sign of that changing despite the high costs of litigation. As families become more fragmented and the concentration of wealth increases, litigation that was previously considered to be a last resort is increasingly common. That is borne out by the rising number of contested will and trust disputes. Non-contentious private client lawyers not only need to factor in the risk of claims when advising on wills and trusts at the outset, but they should feel comfortable to advise as soon as a dispute is on the horizon, even if they work alongside litigation specialists.

The risk of cyber-attacks is rising. Many lawyers will be aware of the recent spate of high-profile cyber-attacks on businesses. Private client practitioners cannot afford to be complacent and assume that only businesses are threatened. The nature of the attack, and the ultimate aim of the attackers, may differ but private client lawyers are firmly in the firing line for this type of attack. They hold highly personal and valuable confidential information which can easily be abused for criminal profit. In the event of a successful attack on a law firm that leads to a loss of its clients' personal data, the resulting reputational damage could be the firm's downfall. Planning for such eventualities requires clear, robust and regularly updated cybersecurity policies to be in place.

All of this means that if private client lawyers are to continue to thrive in the future, they need to be open to change. If the traditional domestic market does start to decline, that means looking to new regions where wealth is being created and there isn't the local professional expertise, or where clients don't want to use local advisers for reasons of confidentiality. It means expanding the range of services on offer. Demand is increasingly likely to be for advice on protection. That includes succession planning, privacy and reputation, and threats from governments, business creditors and divorce. Lawyers who can advise on family governance, international business structuring, cross-border estate planning and probate, and philanthropy should also see increased demand.

The UK market, domestic competition and pricing will all present challenges to traditional private client practices. More profitable opportunities will arise in certain emerging international markets. These are likely to include South East Asia, the Middle East and offshore and, to a lesser extent, Russia/CIS, parts of Africa and South America, and India. The UK private client legal profession is well respected globally, with many hugely experienced practitioners. Those who successfully target these new markets should prosper.

Increasingly, and particularly with the younger generation, expect to see a trend in clients focusing on their personal sense of responsibility and a desire to make the world a better place. This will typically, but not exclusively, be through charitable giving and philanthropy. In an international context, traditional philanthropy is changing, as cross-border families create an increased demand for multi-jurisdictional charitable structures.

As wealthy private clients become more international, their homes, investments, philanthropic and business interests are no longer confined to their country of origin so demand for a family office has increased. It makes sense in those circumstances to have a centre of operations from which a range of services can be provided. The family office becomes the structure through which that specialist support can be directed where it is most needed. Private client lawyers with a family office capability should see increased opportunities.

Conclusion  

The UK remains an attractive place in which to live and do business. Wealthy non-doms can move here and still enjoy a generous tax regime, provided that their affairs are properly structured before they arrive. Residential property as a long-term investment remains attractive to UK and overseas investors alike, notwithstanding recent tax changes. The UK continues to offer several valuable tax reliefs and a low corporation tax rate. All of this, coupled with the stability, security and reputation that the UK still offers, means the private client legal market should remain strong in the next year. Longer-term structural changes driven by tech and a government clampdown on tax planning may impact some parts of the domestic market, but new opportunities will undoubtedly arise for those advisers who target the countries where new wealth is emerging.