Take action!

Sultan is flying from Qatar next week to meet with us. He has a home in Knightsbridge worth roughly £10 million where his daughter Farah lives.

She is a student at the London Business School. Sultan travels extensively but dislikes living out of suitcases so whenever possible he arranges to have business meetings in London so he can see his daughter and travel light.

Last year he paid the Annual Tax on Enveloped Dwellings (ATED) which is a tax to compensate the Government for being outside the scope of Stamp Duty Land Tax (SDLT). A sale of the shares in his Jersey Company would not attract SDLT so instead owners of residential properties owned by companies pay ATED.  He decided to pay the tax this year rather than liquidate the company, because the Jersey Company was still effective at protecting him and his family from Inheritance Tax on his death. On a £10 million home owning the apartment through a Jersey Company would save his estate £4 million.

However, in the summer George Osborne announced that residential properties owned by offshore companies would soon be subject to inheritance tax. In August Sultan visited his lawyer to ask what he should do and was told to wait until more was known. Since then he has heard nothing which is why he came to me. He was concerned. Christmas was fast approaching and then everything would stop until the middle of January. It would then be only ten weeks before the deadline of 1 April and another year’s charge in excess of £100,000. None of his friends and contacts wanted to pay this charge again and Sultan did not want to get caught in the rush in the run up to de-envelope ahead of 1 April.

Sultan’s friend, Osama, who he worked closely with in Qatar, also owns a property in London of a similar size and quality to the apartment owned by Sultan. He also has children the same age as Sultan’s daughter Farah. His advisor had suggested he transfer the apartment into the names of his children and then stay in hotels when he visits London so as not to fall within the ‘Gift with reservation of Benefit’ inheritance tax anti avoidance rules. Osama and Sultan were both irritated by this suggestion. Neither Osama nor Sultan want to transfer valuable properties in London to their children and then not be permitted to stay there.

I explained to Sultan that he needed to liquidate the company to eliminate the ATED charge. He could do this immediately; there were plenty of ways we could then mitigate the inheritance tax exposure.  

In my meeting with him we could then run through his options. I was confident that we could reduce his exposure to Inheritance Tax significantly, certainly by 50% and if the circumstances were favourable up to 100% without compromising his enjoyment of his apartment. He was delighted.

I told Sultan that Garnham Family Office Services specialises in succession and estate planning, but we do not implement any solution. Once a solution has been identified we instruct a suitable professional to work with us. There are many professionals who are highly skilled at delivering the final results, but prefer acting for a family through their family office rather than with the family direct. Garnham FOS offers a culture of care identifying the priorities of our families before suggesting a solution. We then instruct, monitor progress and report to our family giving as much detail as they want.  In this way both the family and the professionals save time and money and the family has then top quality advice at the best possible price.

If you or your contacts or clients have similar concerns to Sultan and Osama, please contact svetlana@garnhamfos.com or phone on 020 3740 7423 to arrange a meeting

A modern day Bleak House?

Many UHNW families are suspicious of professionals putting in place structures and plans which in due course feather their own nest rather than that of the family.

I have a friend who I will call Gordon who owned a company which I will call Artus Limited. In accordance with good corporate governance he appointed a non-executive board and invited his friend Martin to chair it. The company did not do as well as he expected and the bank of Artus asked Gordon to cut his salary and bonus - Gordon refused. The bank then approached Martin to tell Gordon to cut his salary and bonus - Gordon again refused.

After some time of negotiations and cross words Martin asked the board to vote on Gordon’s removal, they did and Gordon was removed from his own company. He was left with shares of a company but at the mercy of a board of which he was not part.

Compare this to the situation I came across recently. Wealthy Mark made a Will and appointed three of his five children as Executors together with a family friend. The decisions of the Executors needed to be unanimous. One of the three children, Harry, was obsessed with calling in a loan, whereas the others were more relaxed about letting it lapse. Harry flatly refused to renounce his office as executor. As a result there ensued three years of litigation.

This is a problem which wealthy families have faced for centuries. Jarndyce v Jarndyce, the chancery court case referred to by Charles Dickens throughout his book Bleak House, is about a family fighting over the fortune of a deceased. Miss Flite had long since lost her mind when the narrative begins. Richard Carstone dies trying to win the inheritance for himself after spending much of his life so distracted by the notion of it that he cannot commit to any other pursuit. John Jarndyce, by contrast, finds the whole process tiresome and tries to have as little to do with it as he possibly can. The court case goes on interminably and finally ends up with the entire estate devoured in legal fees so there is nothing further to fight over!

Sadly the case of Jarndyce v Jarndyce has not given succession and estate lawyers a good name. Many UHNW families are suspicious of professionals putting in place structures and plans which in due course feather their own nest rather than that of the family.

Garnham Family Office Services has always and will always provide families with independent, unbiased advice without any conflict of interest since I instruct, monitor and report on the process of professionals to implement the best solution for the family. All solutions are designed with the aim of saving money and resolving clashes without the need for legal dispute resolution.

Family Governance is a term I coined with this aim in mind. Many years ago I took the time to study the Cadbury report, the Greenbury report and then latterly the Combined Code of Common Conduct to see what lessons families could learn from good corporate governance to avoid conflicts turning into a costly nightmare.  

In many offshore trust structures private trustee companies have been set up to take decisions with a board appointed who know the family and the settlor’s intentions and wishes. However if there is boardroom within the private trustee company, can a troublesome director be removed and how can they stop that power being abused? A settlor does not want his chosen board sacked by a stranger in favour of their own officers.

This was the discussion I had with Mohammed, the head of one of the wealthiest families in the Middle East. He wanted to have the same checks and balances he had in his corporate structure in his private structure, but did not want it weighed down with compliance for which he resented paying. I suggested we went to see the Bahamas Financial Services Board to see if it would be prepared to consider creating a new entity to hold the shares of his private trustee company in Jersey which would act in the same way as a non-executive board, but with the protection of limited liability. After numerous meetings and discussions I drafted the Executive Entity Act which became law in 2011 and operational in February 2012.

The beauty of the Executive Entity is that because it does not hold any value it does not need to have the full weight of compliance which other structures need. A private trustee company, although it may be holding billions of dollars of assets, the trust does not itself have any value. The assets which are held in trust are not on the balance sheet of the company. The only assets of the company are those needed to pay its directors and to run the offices which are relatively insignificant.

Mohammed was one of the first families to have the shares of his Jersey private trustee company held by a Bahamas Executive Entity. He was delighted. He no longer needed a complicated Governance memorandum which he was concerned would fuel disputes rather than avoid them. He was confident he had the right people in the right place who knew him well enough to take the right decisions at the right time, taking into account changes of law and circumstances. Furthermore, while alive he could chair the board of the private trustee company so that he could watch over those he had appointed to make sure they knew his wishes and his way of doing things.

Mohammed is not alone in wanting private succession plans simplified, easy to manage and to save on fees and running costs. He was delighted to be able to save thousands of dollars annually simply by making a few changes in the holding structure which we instructed lawyers to implement.

If you know people like Mohammed who would like to protect their hard earned wealth please feel free to contact svetlana@garnhamfos.com or phone on 020 3740 7423 to arrange a time for a consultation.

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.