UHNW

Are we going to be queuing for an EU passport?

Last week I was invited to Cyprus to visit some clients and catch up with some professionals on the island.

One of my clients, who I will call Ivan, owns a substantial Russian company which specialises in precious stones. He has long taken advantage of the beneficial tax treaty between Russia and Cyprus to extract profits from Russia and then to send them on to the BVI.

Sadly for him both Russia and the BVI were closing in on him and he was concerned. As from January this year, Russia expects every company owned by a Cyprus company to have an office in Cyprus. Ivan has therefore taken space in Limassol, an attractive city on the sea and has mapped out a schedule of visits to coincide with board meeting and annual reports. His company had an apartment in Larnaca, but it was too small for his family.

He was also concerned about the sudden change of direction in the BVI. As a British dependent territory the BVI has to keep a register of wealth owners, their interests and details under the common reporting standard (CRS) which it is under pressure from Britain to make available to the public. It would be bad enough to know that his interests in the BVI would be known to Russia, but for it to be made public was a real worry for him.

Ivan invited me to his office to discuss his options. He confided in me that he had recently remarried and had two daughters under five, but was not seeing them as much as he would like. He was also fearful for their safety. A friend of his who I will call Sasha, had his bank account in Liechtenstein hacked and as a result he and his family were blackmailed; the blackmailer knew all his account details, the names of his family and where his daughters went to school. It was unacceptable to him that his daughters could be at risk from crooks for whom the CRS is a license to print money.

We explored a number of options some of which were very attractive. He was eager to pursue the transfer immediately so that he could sleep at night. 

We then turned to his desire of wanting to spend more time in Cyprus. I suggested that he buy a really nice holiday home in the luxury resort of Paphos which was only 40 minutes from Limassol by car. He could then bring his family with him when he needed to work for the holding company, and spend with them some quality time together.

Cyprus is a destination of choice for 2.5 million tourists every year, who come to enjoy its clear blue waters, ideal climate and sandy beaches. Ivan and I visited some fabulous new residential homes on the seafront which were designed for luxury family life. Ivan was clearly excited.

I pointed out that with a quality home came the added advantage of an EU passport.

This was clearly of interest. As a frequent flyer to European destinations, Ivan was fed up with queuing for immigration and had frequently been caught short by an out of date visa. Cyprus is not only a member of the EU where there is freedom of movement, but has an extensive list of countries which entitle the passport holders visa free travel. Passports would also be available for his wife and two daughters.

The other advantage was that if ever he felt it necessary to leave Russia in a hurry, he had a safe place to which he could retreat where his daughters could enjoy quality education and health care.

As a Citizen of Europe he and his family would also be entitled to a European Health Insurance Card which provides insurance for emergency medical treatment insurance when visiting other participating countries. The look on Ivan’s face said it all, it was just too good to be true.

I said that I could make all the necessary arrangements for him; relocate his wealth and trust from the BVI, introduce him to people for priority property purchases and obtain for him and his family Cyprus passports.

Last week was the first time I had been to Cyprus, but what struck me, in particular, were the people. They were keen to innovate for the benefit of their clients, eager to work with a sense of urgency and exuded a pride in their ability to provide a quality service.

Cyprus was the perfect location for Ivan and his family, and I suspect it could be the perfect location for many others as the world becomes an ever more hostile place for the UHNW families to live.

If you would like to book a meeting with Caroline or one of her colleagues, for estate planning, privacy planning, dispute resolution, matrimonial concerns, offshore trust review or investment strategy, please contact svetlana@garnhamfos.com or call 020 3740 7423.

What does the Budget mean for the rich?

For all the swipes at the non doms and high end property owners, George Osborne seems to have taken a break and made a few thin concessions.

As from 6th April 2016 capital gains tax will go down from 28% to 20% for higher rate tax payers and from 18% to 10% for basic rate taxpayers.

This is of course welcome – but the extraordinary thing is that from our studies capital gains tax at 28% was the tax that most UHNW individuals did not mind paying. The taxes they really resent are the tax on the remittance basis for the non doms, Stamp Duty Land Tax on the purchase or their homes in the UK and most disliked of all is 40% inheritance tax.

If the government showed just a glimmer of understanding of the Laffer curve, it would understand that to cut capital gains tax – a tax which is of least concern to the wealthy and therefore less likely to try to avoid it will just result in less tax in the Government’s coffers. If, however, they were to reduce the tax rate of what the UHNW individuals most dislike and are at pains to avoid, such as inheritance tax at 40% or stamp duty at 15% they would be more likely to increase the tax take for the Government.

As I have said in previous notes the tax taken on stamp duty for Westminster and Kensington and Chelsea has fallen since 2013 by about one half since the stamp duty went up. How do people avoid this tax? Simple – the market has dried up for residential properties above £4 million. In 2013 the tax take from stamp duty from these boroughs alone accounted for more than the total tax taken from Northern England, Scotland, Northern Ireland and Wales put together. If the Government was really serious about raising money for the Treasury it would do some serious research into what taxes are disliked to the point at which people will change their behaviour to avoid them and which taxes are tolerated. It would then reduce the rates of those which taxpayers want to avoid and up the taxes taxpayers were happy to pay. The Government needs to find the rate at which the maximum return can be made for the Government. Sadly the Government would appear to be keener on clinging on to power than raising revenue.

The other measure we tend to gloss over – but at our peril is the continued drive to crack down on ‘all forms of tax evasion and avoidance, and aggressive tax planning and non-compliance’. The Government press policy statement goes on ‘There should be a level playing field for the majority who pay their tax, and everyone should make their contribution.’

These are sentiments with which everyone can agree. However for those running businesses or who have more money than they need to maintain their lifestyle paying the right amount of tax is not always so straightforward.

The UK has more tax legislation than any other country in the world other than India and every tax payer is expected to know and understand every word. Most professionals do not know every nook and cranny and even if they did may have misinterpreted the legal nature of the facts and come up with the wrong assumptions with the result that the taxpayer does not declare what he should or puts in the wrong amount in his tax return.

To give an example, Roger owns his house in the UK through an offshore company and trust structure. He took advice from Blink and Co in 2014 which said that based on the facts before them the company owned the property as a nominee for the children and therefore the Annual Tax on Enveloped Dwellings did not apply (furthermore Blink and Co advised, the ATED payment in 2013 was incorrect and should be recovered). Furthermore they advised, the property was not a trust asset and therefore not subject to the 10 yearly inheritance tax charges.

Blink and Co relied on the facts provided by Roger, but Roger does not fully understand the legal difference between whether a property is held on trust for the children or for them as a nominee. Blink and Co did not verify the facts with the trustee ABC Trust Co; they simply relied on what Roger told them.

If they had asked ABC and Co to verify the facts, they would have discovered not only that the property was owned by the company beneficially but also that the company was owned as an asset of the trust which was used as security to a bank for borrowings. They would also have discovered that ABC Trust Co was very concerned as to the lack of payment of ATED on the property and were refusing to continue as Trustees unless and until ATED was paid.

It is therefore only a matter of time before HMRC finds out that ATED was not paid for a few years and at that time it is likely that the advice given by Blink and Co based on the facts provided by Roger will become known. With the funding from the Government and a clear endorsement to pursue non tax payers, it is more than likely that Roger will then face a full tax investigation together with fines for assisting to evade tax which will then extend to Blink and Co.

In 2014 when Roger took advice neither he nor Blink and Co thought that their actions were evasion of tax – it would have then been considered tax avoidance – not now.

If you would like to comment on this or book an appointment with Caroline please contact svetlana@garnhamfos.com or phone 020 3740 7423.

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.

One door closes another opens

Joshua came to see me last week, it is always a pleasure to meet him. 

He is quietly spoken, but always has some interesting insights into what is going on and cares deeply for his clients.

He told me that several well-known banks were reviewing their clients and for those, who may have been with a bank for many years, but for whom the bank has insufficient information about their source of funds these clients were being asked to take their business elsewhere. Many of these people in his opinion were not laundering suspicious monies; they merely did not have the necessary paperwork about transactions and deals, which may have happened many years ago, to substantiate their claims as to the source of funds.

What were they doing about securing new banking relationships I asked. From his knowledge these people were seeking out smaller foreign banks which did not have a full banking license in the UK, with which to open an account. Without a full banking license these banks were subject to the banking laws of their home country and in some cases could take a more pragmatic approach to the evidence as to the source of funds of their clients.

There was another reason why these smaller foreign banks were growing so rapidly. The amount of detail which financial institutions need to disclose to their local authority under the Common Reporting Standard varies from country to country. Whereas some countries need to disclose the beneficial owner of the funds others also need to disclose the value of the funds with that financial institution. For those families for whom kidnap and financial theft are of real concern, the less information disclosed the better. These families are now also taking active steps to seek out banks in jurisdictions which disclose as little information as is possible. As a result these banks have seen a substantial influx of funds.

It may seem harsh that clients who have been looked after by their bank for many years are now being told to take their business elsewhere. The anti-money laundering rules are not new. However, given the extent of the fines many banks have had to pay for flouting these rules to keep their business, it is hardly surprising that they are prepared to shed some business to keep their reputation intact and the risk of being fined down.

Of course some innocent people will be caught up in this activity and that is a pity. However for those who have obtained monies through dubious sources, they will find more secretive places to put their monies. This will merely increase the possibility that these funds and the criminals behind them will remain undetected.

But I do not think these good housekeeping measures are going to keep financial institutions out of trouble. Once there is full and automatic exchange of information, I fear that financial institutions will come under heavy fire. Without doubt tax authorities around the world will have the information they need to start investigations into all manner of structures and transactions. However, given that there is no right of compensation or appeal against an investigation by HMRC and in particular if it suspects evasion – even if none had occurred, the only place these hapless people can turn for redress is the financial institutions with whom they had their money.

Everyone who comes up against HMRC knows how disruptive, painful and expensive an experience this can be. These people will be particularly angry if the financial institution to which they have over the years paid extensive fees is now responsible for a prolonged and in some cases unnecessary investigation. They will want to sue for wrongful disclosure and compensation for costs and loss of earnings. Litigation lawyers I know are already sharpening their pencils to take advantage of what they see as a very lucrative wave of business.

If you have any insights you would like to share or wish to engage Caroline or her team on behalf of yourself or your clients please contact svetlana@garnhamfos.com

Jerry Hall and Rupert Murdoch

Jerry Hall 59, and Rupert Murdoch 84, have announced their engagement after a four month whirlwind romance.

The couple got engaged in Los Angeles where they were attending the Golden Globe awards. If their history of long marriages continues, Ms Hall is likely to be the last Mrs Murdoch. The empire and his colourful life have all the ‘hall’ marks of a drama waiting to happen.

Ms Hall the former supermodel has four children with her former partner Sir Mick Jaggar and Mr Murdoch has six.

For Mr Murdoch this is his fourth marriage. His first marriage was to Australian Patricia Booker with whom he had one daughter Prudence who is now 57. Their marriage lasted for eleven years and ended in divorce in 1967. She walked away with a settlement of $1.2 billion.

He then married Glasgow-born journalist Anna Tory with whom he had three children, Elisabeth 47, Lachlan 44 and James 43. Lachlan was reinstated into the business empire after ten years and is now co-executive chairman of 21st Century Fox.  His brother is CEO of 21st Century Fox. He was Chairman of the group’s holding company News Group Newspapers when the news of the phone hacking scandal broke. All three children have the business acumen of their father, but only James and Lachlan work in his empire, News Corporation which owns The Sun, the Wall Street Journal and Fox Entertainment Group. He was married to Ms Tory for 32 years who walked away with a settlement worth $1.7 billion when the couple divorced in 1999. Elisabeth and James are not close following her public criticism of her brother about the phone hacking scandal.

His third wife Wendi Deng, a Chinese business woman, was divorced by Mr Murdoch after a fourteen year relationship amid rumours of her infatuation with the former Prime Minister Tony Blair. They have two children Grace 14 and Chloe 12. They were included with the other children as beneficiaries to the stock pool to which his other children are entitled.

Ms Deng was given a settlement to include a $44million apartment in New York a $20 million apartment in Beijing in addition to the assets under their pre-nuptial agreement.

Each of the six children of Mr Murdoch share in a stock pool which was valued in 2006 at $2billion – so are likely to inherit at least $300 million.

For Ms Hall this will be her first proper wedding. Her marriage to Jagger was declared invalid when the pair split after their 23 year relationship ended in 1999.

Mr Murdoch is rumoured to have a net worth of $18 billion so there is plenty left for Ms Hall. If the couple follow the example of his third marriage they will most likely have a pre-nuptial which will no doubt be reflected in any settlement the couple decide on his death.

Although all six children benefit from the stock pool, only two work in the business so their influence will be the greatest. Although we know of the disagreement between Elisabeth and her brother James, other family disharmony will only come to light on the death of their father and then for the sake of his empire I hope he has given more than a cursory thought on how to avoid family disputes turning to full scale litigation through effective Family Governance checks and balances.

With an empire the size of Mr Murdoch’s and with each child being independently wealthy there is plenty of scope for conflict and litigation – and now a further complication has been added in the form of a new and beautiful wife Ms Hall.