2019 - a Bumper Year

In three days, on 5th April, one of the most radical pieces of tax legislation will come into effect, the loan charge power. The law was passed in the Finance Act (No.2) Act 2017,  but was delayed to come into effect until this year to give individuals time to come forward and arrange a settlement with HMRC.

To date 25,500 individuals have come forward, but there remains some 24,500 who are affected, but have done nothing. HMRC estimates that it could recoup £3.2 billion in lost taxation through this legislation.

In January, Britain’s public finances hit their ‘largest January budget surplus on record’ smashing City Expectations. January is always a ‘bumper month’ for the Exchequer because of the deadline for payment of self-assessed tax. Even so, the increase in the surplus from £9.3 billion, last year to £14.9 billion was unexpected. It has been attributed in part, due to rising wages and increased consumer spending, but not an insubstantial part of this bumper year is attributed to the zero-tolerance, aggressive stance adopted by HMRC.

So, what exactly is going on?

In the nineties, tax avoidance schemes were common place. I had my own scheme, the ‘Double Trust Scheme’ to save inheritance tax on your home, and it was selling like hot cakes – so much so, that the Treasury wanted it stopped.  I had top QCs opinion stating that it was robust and could not be attacked – that was until 2004. The Treasury introduced Pre-Owned Asset Tax – an income tax charge on a capital arrangement. It was considered unfair, many of the people who had bought the scheme were capital rich, but income poor.

Governments can change laws as it sees fit to stop abuse – we know that, but it was its zero-tolerance attitude which shocked me and continues to cause me alarm.

We lobbied to have a let-out clause in the legislation, so that people could unravel their arrangements and pay the tax as and when they died, but our pleas fell on deaf ears. The attitude of the Treasury was that anyone who tried to avoid tax would pay the consequences, regardless of how unfair or uncomfortable that may be.

We are now seeing this attitude applied again in this loan charge legislation due to come into effect on 5th April.

In the nineties accountants were peddling income tax schemes; film partnerships, employee benefit trusts (EBTs) Employer-Financed Retirement Benefit Schemes (EFRBS) contractor loan schemes and so on. Each was backed by a robust legal opinion and was confident that the Treasury would not introduce retrospective taxation. This confidence was misplaced.

The most popular scheme was the EBT which worked as follows

·      Alan seconds his services to a personal service company (APSC Ltd)

·      Alan’s employer wants to pay Alan £3,000 for the work he has done during the month

·      Alan’s employer sets up an Employee Benefit Trust, and pays the £3,000, not to Alan, but to this trust offshore

·      The trust then loans APSC Ltd £3,000 for Alan’s work during that month

·      The trust and Alan’s company have an agreement that this loan will not be called in or written off

·      Since Alan received the payment as a loan and not income, he does not have to pay income tax or National Insurance Contributions.

Many employees who are now caught were told that this was a legitimate way to be paid and that there was no alternative option. Get paid in this manner or find another job. They now face a tax bill going back 20 years, as if on the 5th April they had received all their income in one hit.

HMRC expects to retrieve £3.2 billion, in tax. But most of these people simply do not have the money to pay this tax and are looking at having to sell their homes or worse. They have used this money, over the last 20 years to live off.

Tax authorities around the world simply do not care about their tax payers, which is why I fear for the future of most offshore trust arrangements set up by wealthy international families to protect their wealth. Not only are they being targeted by tax authorities, which see up to £8.6 trillion in lost tax but are controlled by professional trustees which have little or no responsibility for the decisions they make. Up the Swannie, without a paddle

But there is a silver lining – all is not lost – but you need to act now, which will be the topic of next week’s blog.

If you would like to find out more simply e mail me on caroline@garnhamfos.com or call on 020 3740 7422 to discuss further

If you would like to buy any of my books – ‘When you are Super Rich Who can you Trust?’ or ‘Uncovering Secrets: How to win business from Private Clients’ go to www.garnhamfos.com or buy direct from Amazon.

If you would like to be a member of our UHNW BConnect Club and come to our ‘Deal Dinners’ or discuss ‘Is privacy dead?’ ‘At Home with Caroline’ or you would like to become a Professional Adviser and be ‘matched with your Perfect Network’ simply contact Barbara Brudenell Bruce on barbara@bconnectclub.com or call her on 020 7484 5168.

Bye bye billionaires

 Sir Jim Ratcliffe the UK's wealthiest person, with personal wealth at £21 billion has announced that he is quitting the UK for Monaco. Ratcliffe owns 60% of his company Ineos which he founded in 1998.

Unlike the US, the UK does not tax its citizens (UK passport holders). Instead, it taxes its people on a combination of factors which now makes up ‘residence’, and a completely different, but related concept of ‘domicile’.

Also, unlike the US the UK does not charge an ‘exit’ tax when you leave. If Ratcliffe were a US citizen he would be treated by the IRS as having disposed of all his assets on which he would need to pay capital gains tax on the uplift.  The UK does not tax anyone who leaves the UK, unless they come back within five years.

By becoming a non UK ‘resident’ Ratcliffe will therefore be able to save income tax at a maximum rate of 45% on all his income and capital gains at 20% (28% on residential property) on all gains.

However, becoming a non-UK resident is not as easy as taking the next ferry out of Dover.

As from 1st April 2013, ‘residence’ has become ‘statutory’ which sets out a four-step process – as set out in brief.

Step one – if Ratcliffe spends 183 days in the UK in any one year, he will be treated as UK resident for that year and charged to income tax and capital gains tax on all income and gains made during that year. This means that Ratcliffe needs to be out of the UK for more than six months, which means he can spend 2/3 days every week in the UK and fall outside this test.

Step two – Ratcliffe will be treated as non-resident if he spends less than 16 days in the UK in the year. This he may find difficult if he wants to continue to run his UK company
Ineos.

Step three – will apply if Ratcliffe wishes to keep a home in the UK and wants to spend a period of 91 consecutive days in the UK. Ik doubt if he needs to spend three months in one stretch in the UK – so this test will not be a problem.

Step four is where it starts to get tricky. Under this rule, Ratcliffe will continue to be taxable in the UK, if he has ‘sufficient ties’ in the UK. If he wants to spend 2 days a week in the UK he can only have two ‘ties’ in the UK, a ‘country tie’ i.e: he has been tax resident in the UK in any one or more of the previous tax years and a 90-day tie, more than 90 days in the UK in either or both of the previous two years. But, he must not have a child at school in the UK, or a contract of employment in the UK, or a home in the UK.

Therefore, he needs to make some radical changes to his work and home life to get out of the UK income tax and capital gains tax net.

To get out of the inheritance tax net on death, which is 40% of his entire wealth on death, he will need to take a different approach. The connecting factor for inheritance tax is not ‘residence’, but ‘domicile’ which is a different legal concept. Ratcliffe will be UK domiciled, if his father was UK domiciled at the time of his birth, which means did his father at the time of his birth treat the UK as his home country or at the time of his death, does he treat the UK as his ‘home’country?

Ratcliffe is on record as being a 'lover of Britain', so proving that he has changed his ‘domicile’ may be impossible to get past HMRC – so to escape inheritance tax he needs to accept that he is within its scope, but get out of it using a combination of reliefs. What he would need to look at carefully, is spouse relief, gifts made more than seven years before death and business property relief for his shares in Ineos.

If I were advising Ratcliff I would also encourage him to look at ways the Treasury could change the ‘connecting facors’. For example it could scrap the above tricky rules and follow the US model. He should therefore think about obtaining a foreign passport, such as in Cyprus or Malta and relinquish his UK passport.  One third of British billionaires have now moved to a tax haven which means 6,800 Britons now live offshore and control their empire, of over 12,000 UK firms from low tax jurisdictions.

With this number of billionaires escaping UK taxes, my guess is that it will not be long before the UK switches to a US style of taxation, which if action is not taken now, could scupper Ratcliffe’s well-oiled tax avoidance plans.

If you would like to find out more, please contact me at caroline@garnhamfos.com or phone on 020 3740 7422.

If you would like to buy a book, ‘When you are Super Rich who can you trust?’ or ‘How to win business from private clients’ go to www.garnhamfos.com or buy from Amazon.

If you would like to come to the BConnect Club B2B event or sponsor an event for our UHNW members, contact Barbara@bconnectclub.com or call on 020 7484  5168.

Was Tony Blair right second time?

Is privacy and data protection a good thing or not?

Should there be a public register of what you own? Would you like your neighbours, friends, children and employees knowing precisely what you own; properties, businesses, pensions and bank accounts? Why not – if you have nothing to hide?

Tony Blair, is on record as saying that one of his greatest regrets had been his own Freedom of Information Act. Why because in his view ‘information is neither sought because the journalist is curious to know, nor given to bestow knowledge on ’the people’. ‘It is used as a weapon’.

To protect his privacy once he left office and started to make money, he erected barriers to prevent an accurate assessment of his wealth His income was channelled through a complicated legal structure. At the top was BDBCO No.819 Limited a company called either Windrush or Firerush. Windrush Ventures No.3 LP was part owned by Windrush Ventures No.2 LP which in turn controlled Windrush Ventures Ltd. The scheme’s advantage was that the LPs, or limited partnerships, were not obliged to publish accounts. Even without public registers and the protection of limited partnerships, Tom Bower, author of ‘Broken Vows’ managed to track down these details – so why do we need a public register?

Furthermore, the drive for a public register is for ownership of companies and properties, but  not of the beneficiaries of a trust – so for anyone wishing to disguise their ownerships they simply need to set up a trust – or take their assets outside the Overseas Territories and Crown Dependencies – in which case Britain plc is shooting itself in the foot. We will get nothing and business will flee from the territories we should be protecting.

This week a Government Bill designed to protect the City in the event of a no-deal Brexit was pulled in the face of almost certain defeat after MPs added an amendment that would have forced greater transparency on the Isle of Man, Guernsey and Jersey – the Crown Dependencies.

The idea of public registers of companies, was originally proposed by David Cameron and George Osborne in 2013 in the fight against the use of offshore financial centres to launder money using a myriad of offshore companies. It was dropped when May became Prime Minister, but resurrected by a bank benchers Hodge and Mitchell.

It is generally accepted that the UK cannot interfere in the affairs of another country even an ‘Overseas Territory’ such as the BVI or Cayman, or a ‘Crown Dependency’ such as Guernsey except in extreme circumstances.

The UK has however intervened in the affairs of the Overseas Territories, such as in the repeal of the Death Penalty in 1991 and decriminalising homosexuality in 2,000, but has made no such intervention in the Crown Dependencies, which is why the bill had to be pulled to give time for a more detailed debate.

Hodge takes the view that a public register of ownership to stamp out the ‘traffic of corrupt money and illicit finance’ across the world’ justified such intervention! The Paradise Papers according to the campaign group Global Witness estimates that £68bn flowed out of Russia via the British-overseas territories between 2007 and 2016, - but what of other countries? To date only three prosecutions have been made. Is this a good enough justification for undermining the privacy of many others?

Andrew Mitchell takes it one stage further, ‘It is only by openness and scrutiny, by allowing charities, NGOs and the media to join up the dots, that we can expose this dirty money and those people standing behind it. Closed registers do not begin to allow us to do it’

That did not prevent Tom Bower finding out all he needed to know about Tony Blair!

The real debate needs to be on how far can we undermine the human right to privacy enshrined in many countries so that rich countries can pick out a few bad apples in a barrel of good ones?

Do you agree, let me have your thoughts or you may like to share this with a friend who may wish to comment.

If you would like to find out more please contact caroline@garnhamfos.com or phone on 020 3740 7422.

You can also buy my books ‘Uncovering secrets: How to win from Private Clients’ or ‘When you are Super Rich who can you Trust?’ from Amazon or direct from www.garnhamfos.com

You can also contact Barbara on barbara@bconnectclub.com if you would like to join our club of UHNW families, or attend our B2B matched networking events starting in May.

How to win business from Private Clients

Some years ago, I asked myself ‘How do I win business from Private Clients?’. Not knowing the answer, I decided to write a book on it – which meant reading up on the psychology of selling and winning business –The book was eventually written and published under the title ‘Uncovering secrets: Winning business from Private Clients’.

The first chapter deals with setting goals – what business do you want, at what profit margins and who is likely to want your services.

Setting goals is the most important step to take, as I have proved time and time again – if you do not set your own goals – someone will set them for you, and you will end up resentful or envious – which is not good for your health or happiness.

I included a sub chapter in setting goals on ‘Your subconscious’

‘Have you ever been at a party chatting to someone and then out of the blue heard your name? How did you hear it over all the noise? Have you heard a mother tell her child ‘Don’t run’ and the child immediately starts running? Or you say to yourself ‘Why am I so clumsy?’ and immediately drop something?

Your subconscious or reticular activating system is continually working; trying to solve problems, and looking for things of interest. But, like a child who is told ‘not’ to run and immediately starts running, it cannot process a negative.’

You need to set goals and they must be specific and positive – For example; I want a profit of £3,000,000 from global families who want to protect their family wealth through a trust over which they have control and they want their wishes to bind future generations.

Once goals have been set, it is much easier to find clients – direct and indirect.

I took the slightly more unusual route of finding clients direct by forming a club of UHNW global families with a partner, Ankush Mehta, who is better able than me, to run events and promote private deals which is what single family offices want. Ankush and I formed The BConnect Club and Barbara Brudenell Bruce is our business development director. The Deal Dinners which Ankush hosts are already established and proving to be popular with our UHNW global families and single family offices.

It is now time to add into the event mix ‘Learning Lunches’.

Each Learning Lunch event, will be exclusive to 6 global families where they can learn how best to protect their family wealth through a trust while staying in control of the investment decisions and the distribution policy, without being beholden to professional trustees, and how to  introduce binding wishes which guide the family for more than three generations.

The other, and more widely adopted route to win business, is networking and how to do it effectively and efficiently. At its most basic level, networking should be about finding a group of professionals who have clients who you would like to be introduced to.

Sadly, however, most people have no real idea why they go to events or what they are expected to do when they get there. They have a glass of wine and look vaguely around for someone they may know. According to the professionals I interviewed for the book, their networking has poor if not non-existent returns on their investment of time. They collect business cards, put them in a drawer, and do nothing further with them.

In my book, I talk about the innate fear of the influence of strangers, and that it takes between 5 and 12 touches, before this fear is sufficiently reduced to want to refer business.

As from May, BConnect Club will host B2B networking events –designed specifically for private client professionals to win business.

At each event, we will ask three or four professionals across a wide spectrum of services to give a ten-minute case study. Stories involving people who have a name (not their real name), an age, family and lifestyle are engaging, informative and fun stories. Ironically stories are one of the four ways to get around the innate fear of the influence of strangers, which means through case studies you can win business more quickly.

At our B2B events we will also digitally match each professional with five others across a wide spectrum of service providers. When you arrive, you will be given five names who you our BConnect Club team will introduce you to. So, at our events, you will have no fear of walking into a room full of strangers, you will be carefully matched with the people you need to meet.

If you would like to find out more about how to stay in control or your trust and how to create binding wishes, you can contact me at caroline@garnhamfos.com, or on 020 3740 7422.

If you would like to buy my book ‘Uncovering Secrets: Winning business from Private Clients’ you can do so from my website www.garnhamfos.com or from Amazon.

Or, if you would like to know more about our Deal Dinners, Learning Lunches, or B2B events, please contact Barbara on barbara@bconnectclub.com or call her on 020 7484 5168.

EU: Naming and Shaming

The EU; naming and shaming

A Note from Caroline

The EU earlier this month revised its blacklist of non-co-operative countries, and increased the number from 16 to 23. Countries such as Panama, Saudi Arabia and Bahamas have now been included. Ireland is not included, because it is in the EU, even though it has been used extensively as a country into which to shift profits.

Business is harder to do with entities located in a blacklisted country, because banks operating in the bloc of 28 countries are expected to carry out additional checks on payments to and from a blacklisted country.

There is nothing wrong with a country changing its laws and its tax rate to attract business, but high tax jurisdictions, such as most countries in the EU bloc, don’t like it. Companies such as Amazon and Starbucks, have made extensive use of tax haven or low tax jurisdictions to mitigate taxes on their world-wide profits.

Intellectual property rights, for example can be based in a low tax jurisdiction such as the BVI and royalties paid for using the brand will lower the taxes in the high tax jurisdiction such as the UK and increase the profit in the BVI entity the low tax entity.  This practise is called base erosion and profit shifting (BEPS).

There is little that high tax jurisdictions can do to stop this practice other than to bully, and ‘name and shame’ – which is what the ‘blacklist’ is designed and succeeds in doing.

Take the Bahamas, it is a small jurisdiction which has succeeded in establishing itself as a financial centre. It wants to become the number one jurisdiction for headquarters of personal empires. Being included in the blacklist will damage its reputation for being a trusted place in which to base business headquarters.

The Minnis administration recognises this, which is why in December 2018, it made amendments to the Commercial Entities (Substance Requirements) Act and sent high level Government Officials to Brussels to meet with the European Commission. Despite these efforts it still failed to stave off entry on the EU’s non-conformation blacklist, and joins countries such as Afghanistan, North Korea, Iran, Iraq and Samoa which are not known tax havens. 

In particular, the Bahamas has been accused by the EU Commission of failing to satisfy the physical presence tests.

The EU sets out three objective criteria which a country needs to satisfy to stay off the EU blacklist

·      Transparency: whether the country is compliant with the international standards on automatic exchange of information (AEOI), exchange of information on request (EOIR), and that the jurisdiction has ratified the multilateral convention. The Bahamas tried to sidestep signing the multilateral convention a few years ago, until the EU forced it to sign through the use of its blacklist

·      Fair Tax Competition: the EU and OECD do not like countries such as the Bahamas charging zero rate of tax on its business income – which it calls a ‘harmful tax regime’. High level Government Officials I have spoken to talk of introducing a tax on business profits, but as yet have not done so, we need to wait to see whether the EU will demand this in due course, and

·      Base erosion profit shifting implementation; the EU wants to see only businesses with substance benefiting from low taxes; not businesses which book profits in the jurisdiction, but have no real presence. Where businesses do not have this ‘Inclusive Framework’, it will be added to the EU blacklist, which was the decision the EU Commission took about the Bahamas.

The EU through its harsh use of the blacklist shows us just how serious it is in stamping out tax mitigation which affects their countries’ tax revenue, even if it is completely legal. Naming and shaming works and the smart money now knows that it needs to build in substance or be investigated and attacked.

But this approach is not limited to international businesses. Trust structures must also have substance.

They need to have

·      No persons of significant influence, which could indicate that the settlor did not intend to set up a genuine trust by reserving powers to someone else who could remove and replace them

·      No persons who have no real knowledge and experience of the family, the family business or the family investments. The trustees must act as a prudent man of business and therefore must have the necessary qualifications to do so, and

·      No indemnity clauses, or non-interference clauses, if the trustees are not taking any responsibility for doing their job.

Most professional trustees are now looking to decouple the administration of the trust from the decision making, by setting up a special purpose trustee for their most significant clients working with GFOS. It is now accepted that tax authorities will do what they did with information they bought from a Liechtenstein Bank employee. HMRC systematically investigated every client of the bank who lived in the UK and argued that it could tax the settlor/ beneficiaries as if the structure did not exist.

If you would like to find out more or would like to book a meeting with Caroline, please phone on 020 3740 7422 or e mail on caroline@garnhamfos.com.

You can also buy Caroline’s books, ‘When you are Super Rich who can you trust?’ and ‘Uncovering Secrets, How to win business from Private Clients’ direct from www.garnhamfos.com or from Amazon.