UK: An Introduction
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On a global basis the COVID pandemic has created several million new millionaires, according to Credit Suisse, and this trend is certainly true of the UK.
With lower lockdown spending, rising house prices, a resurgent stock market and some business ventures really taking off during the last year, the number of UK-based high net worth (HNW) individuals has increased and those already in that cohort have, on the whole, been less impacted, at least financially, by pandemic woes than others.
In the past 12 months more clients than usual have been getting to grips with their paperwork, estate planning, creating and updating Wills, setting up trusts, establishing Powers of Attorney, reviewing life insurance policies and creating pre- and post-nuptial agreements.
Their questions, concerns and their approach, however, remain consistent with the pre-COVID era.
HNW clients are typically focused on ensuring their assets will pass efficiently down their family line. Whether in their eighties or thirties; “old” wealth or new generation entrepreneurs; marrying for the first time or remarried with a complicated new family set-up, asset protection and planning for such is a common theme.
Popular solutions include mitigating Inheritance Tax through trusts and corporate structures, as well as creating pre- or post-nuptial agreements to protect family or self-generated wealth from the consequences of divorce. Clients are asking for succession planning for family wealth and family businesses and prudent steps to ensure these are shielded, as far as possible, from tax exposure, marriage break-down and sheer misadventure.
Another theme which preoccupies HNW clients is the quest for privacy. In the family law arena, that may mean opting for private divorce proceedings which are swifter, more efficient, more controllable and importantly involve resolving financial and parenting issues behind closed doors. In terms of real estate, some clients want to use company structures to buy their homes rather than disclose personal ownership. Reputationally clients may need support if deeply private information is put into the public domain by a news organisation, on the internet or social media.
There are privacy issues at stake in a wide range of matters, from data-breach situations to threats and allegations concerning personal and sexual relationships, and clients are asking for advice across the breadth of these. The need for discretion is critical, and something Kingsley Napley understands well throughout our business.
Hand-in-hand with the growing popularity of Environmental, Social & Governance based investing and the importance of Purpose in the business world, goes the upward trend of philanthropic and charitable giving for HNWs when it comes to their personal wealth. This is especially true in the ultra-HNW community. Not only are there tax incentives to consider, but, without doubt, there is also a mindset shift underway whereby the super-rich want to share the benefits of their wealth, leave behind a legacy or, in some cases, protect their children from the danger of inheritance without responsibility. How philanthropic gifts are structured can be crucial both for the benefactor and beneficiary.
Brexit & Immigration
Of course, no UK country overview can fail to address the implications of Britain’s recent departure from the EU. Although the impact is still to be fully determined, there are a number of immediate observations worth sharing.
First, UK resident HNWs with international wealth, properties and assets abroad will not see a huge difference in terms of succession and inheritance planning because the UK never actually signed up to the EU Succession Regulation back in 2015. Where our schism with the EU is likely to have more effect is the process of marital split for couples with European origins or residency rights. There is now the potential for a jurisdictional race when it comes to filing divorce proceedings. This was avoided under Brussels 11a legislation.
HNWs born in the EU but now living here have been able to apply for settlement status and residency rights, subject to certain conditions. The question remains how many will want to come to the UK in future and that is still a significant unknown, not helped by the UK’s new tighter immigration rules.
On the other hand, there has been a notable influx recently of HNW families relocating to the UK from Hong Kong, following the launch of the new British National (Overseas) visa. This has helped attract HNW families unsettled by Beijing’s democracy crackdown.
There has always been a steady stream of wealthy Asian nationals entering the UK via the Tier 1 Investor visa scheme and this continues, albeit at lower levels than usual due to the COVID pandemic, although some of those arriving have lost faith in their national Government’s response to COVID and vaccination programmes.
The rise of digital assets is also a trend no HNW client can ignore.
The world of cryptocurrencies is creating a new breed of HNW individual who needs advice on asset purchases, potentially criminal or fraudulent activity, asset loss or often crucially, how to crystallise value in real money terms from their investments. Given the currently limited regulation in the cryptocurrency space, crypto investors have to proceed with care and require advice in particular relating to money-laundering legislation and asset-tracing when it comes to this asset class.
Other digital assets are also important, despite there still being no proper legal definition of such. Yet online bank accounts, online gaming accounts, social media profiles, blogs, digital photos and other information which exists in digital form can be considered property which can be owned with implications for how they are in turn transferred, secured and protected.
Digital assets are, of course, not simply the preserve of the HNW community. However, we predict those most likely to want to use the courts to press their rights in this area, will be those with the wealth to do so.
Although a one-off wealth tax of 1% on assets above £500k was proposed by the Wealth Tax Commission last year, the consensus view is that this is not likely to get parliamentary support under a Conservative Government. A direct tax simply on existing wealth has never existed in the UK although stamp duty, Inheritance Tax and other taxes are, of course, effectively “wealth” taxes.
Undoubtedly the tax as recommended would raise a lot of money at a time of the unprecedented and costly Coronavirus situation which we all understand needs to be paid for. However, a Government would have to be exceptionally brave politically to consider introducing such a tax. The risk is it would encourage capital flight and most likely creative avoidance methods would also emerge.
If a wealth tax was to be introduced overseas, however, this is not something that can necessarily be ruled out here in the longer term.
At Kingsley Napley we advise clients in the HNW community on all of the issues described above and more, when it matters most.
For further information please contact:
James Ward (Head of Private Client) on [email protected];
or Jane Keir (Partner in the Family & Divorce team) on [email protected] .