Covid-19 and lockdown has disrupted the way we work, and has challenged how we work. Some of our clients will be winners; some losers.
Just a month ago, UK borrowing was predicted to be 2.4% of GDP this financial year. Now the consensus forecast is 10%, or roughly £200 billion - and that assumes normal life resumes by late summer. The shutdown is costing Britain £2.4 billion a day.
Economists are in uncharted territory. David Smith in the Sunday Times reckons ‘this great modern plague will be followed by a great inflation’ whereas Jeremy Warner in the Sunday Telegraph says it could go either way depending on how quickly we can bring this unsettling lockdown to an end.
Medical scientists are also at a loss. Testing for antibodies is easy to do and could inform decisions about when we could ease lockdown, if large numbers of people were found to have already been infected. But Dr Maria Van Kerkhove an American epidemiologist said that while these tests measure levels of antibodies in the blood, there is no evidence ‘that an individual is immune or is protected against re-infection’
There are 115 vaccines currently being tested, according to the Coalition for Epidemic Preparedness Innovations (CEPI), but vaccines have never before been manufactured on this scale or speed - so major hurdles.
In short - we are at a loss to know where and when this is going to end - but it will end - as did the Spanish flu. So let’s leave aside the when and where. What are the trends and is there anything we can do now to better prepare us to serve our clients?
One thing for certain is that the longer lockdown goes on the winners will be fewer and the losers greater, but for the winners there will be massive opportunities to ‘gobble up’ the losers - and make the gap between the haves and the have nots even greater.
A study by the Office for National Statistics (ONS) found that Britain’s total wealth grew by 13% in the two years to 2018 to reach a record £14.6 trillion with wealth among the richest 10% of households increasing almost four times faster than those of the poorest 10%
What will the statistics be when Covid-19 is finally curtailed?
Boris Johnson like any other ambitious Prime Minister will want to appeal to his voters - and what better way than to parade a few scalps from the rich found cheating the taxman by hiding their wealth offshore. However, Boris now has the tools he needs to do it.
In 2010 the US introduced the Foreign Account Tax Compliance Act (FATCA) which requires all non-US financial institutions to search their records for customers who are US taxpayers and to provide the IRS with the details of these deposits
All other OECD countries saw the success of this US initiative and followed its lead with the Automatic Exchange of Financial Information known as the Common Reporting Standard.
As from 2018 financial institutions across the globe are obliged to report on the financial details of their foreign clients to the tax authorities in their home country so that they can match what is reported against their taxpayers’ returns. Any discrepancies will be investigated.
This is fine, provided it is fair and reasonable?
Mel Stride, the Financial Secretary to the Treasury said, since 2010 HMRC raised £2.9 billion by tackling offshore non-tax compliance ‘enough to build six new hospitals’
He goes on ‘HMRC will continue to crack down hard on those who try to avoid or evade paying tax they owe, as well as those who help them, by investing in the latest technology and using its tough new penalties’
Notice that Stride included ‘avoid’, which is legal, as well as ‘evade’ which is not.
In December 2019, HSBC, a Swiss private bank was fined $192 million to settle a case of criminal conspiracy. The IRS claimed that HSBC had assisted US taxpayers to conceal and ‘evade’ US taxes on $1.26 billion of undeclared assets. But HSBC was not doing anything, it, or many other banks considered illegal - it was encouraging its clients to avoid tax, but not evade it.
But the IRS did not like this and so issued criminal conspiracy claims. As a result most private banks stopped acting for US taxpayers.
Just as HSBC and other banks found to their cost - that what they thought was legitimate ways to avoid tax, turned into criminal conspiracy so we have seen Governments, all over the world, ‘recharacterizing’ legitimate tax planning arrangements to claim tax.
So if this is likely to be the Government's next step, how can our clients protect themselves from an overzealous HMRC?
First review your clients’ existing offshore wealth ownership structure - is it as robust and sound as it could be? This may be expensive, but nothing like the cost of years of haggling with HMRC trying to disprove their claims.
Second as and when a claim is made by HMRC see whether to pursue a Judicial Review. Under existing UK law neither a Prime Minister not Governments are permitted to abuse their power.
Gina Miller successfully appealed to the Supreme Court on the basis that the decision of Boris to prorogue (suspend) Parliament was unlawful and was ‘politically driven to stifle debate and allow the clock to run down on Brexit’.
Both Filippo Nosedo, private client lawyer with Mishcon de Reya and Ross Birkbeck a tax barrister concur with this approach but are concerned that Boris may try to clip the wings of the Judges and restrict the use of Judicial Review by the taxpayer.
Until this happens, however, clients faced with a claim from HMRC should seek advice - and quickly - whether to pursue a Judicial Review. They will also have to work very closely with their fiduciary service providers to put forward the best possible case.
This week’s Podcast Professional is Alison Parry, Head of Private Wealth of the Intertrust Group based in Guernsey. I put to Alison ‘my hunch is that post Covid 19 we will see a renewed effort across the ‘globe’ to soak the rich which could directly face your clients and your business - what are your views?’ Hear what she says in reply.
Next week I will continue with the second part of this, what next two part series
If you would to find out more about our Podcast Professionals or would like to join our project to create the definitive podcast library of information for the UHNW community contact deborah@garnhamfos.com or call 020 3740 7423.
Keep safe, keep strong and keep well.