Planning for Brexit

Now that Boris Johnson and Michael Gove have thrown their hats out of the EU ring, maybe we should think of how we could make our country and economy great again.

Switzerland is a safe haven for investors. Lorne Baring of B Capital based in Geneva and London in last weekend’s Spectator said ‘Around 35% of clients are UK based non-doms, so they need to put their money to work in a safe place that’s outside, but not far from Britain, and a place that is in Europe, but not part of the EU. Switzerland fits the bill perfectly.

It also has the ability to attract wealthy individuals to live there and bring with them their wealth for the country to manage.

As a result Switzerland has one of the highest wealth per head.

If Johnson and Gove were to win the referendum, ousted Cameron and Osbourne and had the guts and far sight to do so – they could easily shape the UK along the lines of Switzerland; outside of the EU.

What would I do if asked?

1. Extend the exemptions for remitting monies into the UK tax free, to encourage non doms not only to live here but to bring with them their monies to invest in and with the UK. In this way the country would attract monies out of Switzerland to be invested in the UK for the benefit of the UK economy. 

2. Make the remittance basis of taxation fairer. Currently if Francois who is UK resident but non UK domiciled received an inheritance from his uncle, on which he had earned no interest or made any gain – this money could be remitted into the UK totally tax free, if Francois were eligible for the remittance payment of taxation. This is because only income or gains which are remitted to the UK are taxable – pure capital is not.

Huge amounts of time and money go into people like Francois trying to keeping their capital pure, so that when it is remitted into the UK no tax is payable. Similarly, HMRC spends huge amounts of time and money trying to prove that Francois has in some way got it wrong. If it succeeds in proving Francois has remitted taxable monies he will then have to pay interest and penalties on what he did not declare.

All monies whether capital, income or gains should be subject to income tax  when remitted, with broad exemptions for monies invested in the UK; property, equity, debt or alternative investments. This is fair because it taxes what they spend, but not what they invest, in the UK.

This simple change would cut expenses and make the UK much more attractive for non-doms to live and bring with them their monies

3. Remove the levy on the remittance basis of taxation.

4. Change the excluded property settlement rules for inheritance tax. Currently if a trust is set up offshore and is treated as an ‘excluded property settlement’ all assets treated as non UK situs are outside the scope of inheritance tax. Why not therefore treat such trusts with  trustees and management in the UK resident as if they were offshore. In this way excluded property trusts would be much more transparent to everyone, would create jobs for our trained and skilled trustees and bring more monies into the UK to be managed. The UK invented the trust but we do so little trust work now in the UK. All disputes affecting such trusts should also have access to our UK court system.

5. Introduce an amnesty, for all non doms who bring their excluded property settlements onshore. Most excluded property settlements were set up such a long time ago that not only are records impossible to find, but also the distinction between capital and income has become impossibly blurred. For all excluded property settlements which migrate to the UK there could be an amnesty for any tax liability incurred as a result of inaccuracies in accounting and administration. This would be particularly attractive when the Common Reporting Standard becomes fully operational in 2017 when taxpayers would prefer to locate their wealth to a jurisdiction where the administration and compliance rules are well understood and properly applied.

6. Change the Stamp Duty Land Tax on residential properties to a more modest rate. Currently the rate introduced by George Osborne is at 12% (15% for second homes) which has had a negative impact on the collection of tax. It would appear that the tax take for Westminster, and Kensington and Chelsea, which used to account for more than Scotland, Wales, Northern Ireland and Northern England has since 2013/14 fallen by half. This is a great example of the Laffer curve, which shows that if the rate of tax is put up to a level at which the taxpayer will not pay the collection of tax goes down.

Our country needs to find the rate of stamp duty land tax at which the maximum tax is collected and not just what rate is likely to win the most votes.

If you have any comments please please call on 020 3740 7423 or email svetlana@garnhamfos.com 

If you think any or all of the above could increase your ability to win business in the UK and thereby improve our economy please forward this to your MP or to any influential politician, journalist or friend so that we can start to formulate a strategy post Brexit.

Garnham Family Office Services

I am pleased to announce that we are now in business as Garnham Family Office Services. In particular our attention will focus on succession and estate planning.

For our long time UK residents clients who are non UK domiciled we will undertake a review of their excluded property settlements. I will instruct the appropriate professionals to take on the work and will monitor them closely for progress and feedback reports.

Gregor is a long term UK resident non UK domiciled individual who lives in Hampstead with his family. He set up his trust fifteen years ago. We went through the trust documentation and I asked him whether he received any benefits from the trust or remittances and from what source they were paid. We instructed a firm of accountants to do a forensic audit of the payments with the trustees. There were a number of remittances which had not been declared. I told Gregor’s accountant to declare the remittances and pay such tax as was due.

We then looked at any changes to the trust and found that an appointment of half the trust had been made onto new trusts, but luckily they were made when he had been fifteen years resident so it still qualified as an excluded property trust. If however, the appointment had been made after he had been resident for seventeen years it would have not qualified as an excluded property settlement and would be within his estate for tax purposes.

I asked Gregor what he would have done if he had discovered that his trust was not an excluded property trust. He said that his brother who was also a long term resident non dom, had set up his trust but it was when he was deemed to be UK domiciled and was now engaging in litigation against the solicitor who set it up.

This could be a very worrying time for many succession practitioners as well as many trustees. There were a lot of offshore trusts set up decades ago, when there was little thought given to a review by HMRC. The stock answer was ‘How will it ever find out?’ The harsh truth is that following April 2017 it will find out and anyone who has not taken care in the set up or has not declared all remittance or benefits will be in danger of a full investigation, a fine or even worse - probed for tax evasion.

The second area where we are providing family office services is for owners of prime UK properties which now seem riddled with taxes. Last week we went to see Frank, a family office property expert. He said that the upper end of the market was frozen with a spike of interest for property to rent. From the perspective of people he knows in Asia, London prime property is now considered expensive and buyers can negotiate discounts.

The main culprit is the hike in stamp duty land tax. My neighbour Richard said last week 'who wants to drop a million pounds?' Although there are ways in which this tax can be mitigated, the market is now of the opinion that London is expensive and are simply no longer interested.

The third area where our family office services are of interest are on UK doms or non doms looking to mitigate their exposure to inheritance tax, which at 40% is considered excessive. Estate planning must always be viewed as an ongoing exercise. It is not just for the elderly in God’s waiting room. Younger people also die unexpectedly and if they do not want to pay more tax than they need they need to have a plan and review it regularly. Laws and family circumstances change and when they do the estate plan also need to be reviewed and amended.

Alice is third generation in a family of significant wealth. She recently inherited shares in an estate agent business from her uncle and came to see me as to what she should do with them. I made it very clear that I could not advise her on the business as an investment, but could introduce her to people who could. However I was able to point out the tax advantages of owning shares in a private ongoing business which were considerable.

Of course our family office services are not limited to people who are alive. We can also provide solutions for post death planning and we had an opportunity to do so last week with Martin who came to us on the death of his father. Post death planning is of course limited. Either you have some tools to play with or you do not. For example Martin’s father’s estate did not have any assets which qualified for business property relief so we needed to look elsewhere and came up with a good solution for him.

Last week we were also approached by William. He said he had not done any estate planning because he did not know who to go to – he only knew business professionals and did not know anyone for his personal needs. Again I was able to point him in the right direction, instruct the professionals on his behalf and keep a check on progress on his behalf.

If you have a situation like Gregor, William, Richard,  Alice or Martin and would benefit from our services please contact svetlana@garnhamfos.com or on 020 3740 7423.