Is it enough?

Do you remember the days, when we could book tickets for the theatre, a sporting event, a concert or a gallery – and look forward to it, with maybe a drink before and a meal after?

As we lament the past pleasures of sport and culture, spare a thought however for the industries which entertain us? Most are struggling to survive, which is why the Government announced on 12th October to benefit more than 1,300 arts and cultural organisations with £257 million as part of a vital boost from the Government’s £1.57 billion Culture Recovery Fund – but is throwing money at the problem enough – or should the government do more to stimulate demand and restore confidence?

If money alone were the solution, then why has the Royal Opera House announced the sale of a David Hockney in a ‘desperate bid to replace lost revenue due to the pandemic?’

In a recent Economist article, it said that economists have not been too bothered by the high levels of Government borrowing – because interest rates are so low – but it goes on to say ‘governments ideally ought to make sure that new borrowing is doing things that will provide a lasting good, greater than the final cost of the borrowing’

The Government has been at pains to show, in lending support for the arts and culture that it is providing a lasting good.

It commissioned research from the Centre for Economic and Business Research (CEBR) that has indicated that the Government’s Culture Recovery Fund will ‘help the cultural sector return to pre-Covid levels of growth earlier than expected’.

The report predicts that the sector will return to its pre-lockdown level of £13.5 billion by 2022, a full year earlier than was anticipated without government intervention. The report also shows the sector is set to be worth £15.2 billion to the economy by 2015

This report was published at the same time as research by Metro Dynamics on the links between culture and the wider creative industries that found culture ‘acts as an R&D lab for the creative industries, encouraging experimentation and in turn driving innovation and commercial activity’

The creative industries brought over £100 billion to the economy before lockdown.

Of itself the arts and culture sectors were worth £13.5 billion to the economy in 2018 and employed 233,000 people. It also contributed to the Government’s ‘levelling up’ agenda by supporting the economy in the North and Midlands.

But who is to say that the culture and arts sector will ever return to pre-Covid levels of growth given that there is talk of theatres reopening with only one seat in three being occupied?

The Economist article goes on ‘In the long run, the way to avoid having to borrow to the hilt is to implement structural changes which will revive what does seem to be chronically weak demand’

It goes on … ‘stronger underlying growth would subsequently reduce the need for further government borrowing, raise GDP and boost tax revenues. In principle that would make it easier for governments in such situations to pay down their increased debt’

In my opinion – as a Fellow of the Institute of Taxation and Private Client Lawyer – government can throw money at an emergency – but ultimately it will be our clients – the world’s wealth creators – to whom we will need to turn to will find creative ways to boost confidence in the market place and attract people back into our theatres, concert halls, galleries and sporting arenas.

The government has bought time for the culture and arts sectors– but it is our clients– the world’s wealth creators to whom we look to use that time to find new innovative ways to build confidence with their customers to make them feel safe to come to the UK for an arts and culture experience, and for us to want to return to places of entertainment and enjoyment and to live with the new norm – post pandemic– regardless of vaccines, track and trace and any other statistics and procedures. The government through tax benefits and exemptions must support them in doing so.

The Private Client Industry is uniquely placed to help the recovery by clubbing together, to share Client Stories and Podcasts so we can discover collectively what we can do for our clients – the world’s wealth creators to build trust and do our bit to help restore some normality into the world in which we live. This is the ethos behind Caroline’s Club.

Maybe we need to form a Private Client Professional Association which lobbies the government to introduce tax breaks and reliefs for our clients; to encourage investors to buy the David Hockney from the Royal Opera House to help its liquidity, and invest into businesses of the future to stimulate growth. Maybe this is a question we need to put to Martin Territt of Territt Consultants a professional lobbyist at this week’s Client Stories Zoom meeting and our Podcast Professional of the week.

If you would like to join our group, simply register and sign up to Caroline’s Club by clicking here.

Suck it up

Last week I spoke with my client who is of the view that lockdown reveals democracy is not working.

There is a conflict he said between doing what is right for the country and pandering to the voter to get re-elected.

The average man or woman in Middle England, where the battleground will be for the next general election wants to see higher taxes for the rich – to pay off the debt the government has created post lockdown and for tax cheats to be squeezed until the pips squeak.

All leaders, including Boris Johnson, no doubt, want to be re-elected – so they want to do what the people want rather than show strong leadership and do what is right for the country, to rebuild our economy.

In Singapore, where I have a close connection with a leading lawyer – the current government is focussed on attracting wealth creators into the jurisdiction to stimulate the economy and employment. In this country however we have introduced greater ‘fairness’ to please the average voter and removed many of the tax benefits which once applied to foreigners to encourage them to live here – these wealthy foreigners are now attracted to Singapore, Portugal and even Italy

It was only a few weeks ago that there were leaks to the press, that No: 11 was considering raising tax rates and in particular a suggestion that capital gains tax rates could be raised to match the rates of income tax, with a top rate of 45%.

Why would anyone take the risk of investing in a business if the profit they made as a result of taking a risk was taxed as heavily as income?

Wealth creators need to be incentivised to do business in this country – not driven away with high taxes and punitive penalties if they make a mistake.

And now rather than give clarity the Chancellor has cancelled the November budget under emergency measures as Boris Johnson announces a further lockdown which could last for six months. Where will this take the country as we leave the EU?

At present the Government borrowing for the current financial year is projected to reach £300 billion and the total debt levels to £ 2 trillion. We have spent £35 billion on the furlough scheme alone – and no end in sight with a projected 2 million unemployed.

If I were a professional Prime Minister rather than one seeking re-election at the next vote, I would start to introduce optimism. There is no doubt in my mind that in due course, we will learn to live with covid 19 – medicine will be found to treat better the disease, we will continue to wear masks, sanitise our hands and keep our distance. The numbers of deaths and suffering will come down and we will have a greater understanding of who and how to work from home.

The level of debt even though extreme may turn out not be so bad – interest rates are low, so in practice all we need to do is to service the interest which is going to be possible -  provided we can stimulate spending and encourage businesses to re-engage those put out of a job as a result of this pandemic. Interest rates are likely to remain low or even slip into negative interest rates which means the amount to be repaid goes down.

With regard to taxation – if I were a professional PM rather than a PM seeking re-election I would take the rates of taxation and VAT down for the worst hit businesses and for those which employ the most people such as the hospitality sectors.

I would then re-introduce the £10million break for entrepreneurs to encourage them to keep their business and make them even bigger before a sale. Reducing the relief to £1million merely encourages entrepreneurs to sell too soon rather than stick with it until the gain reaches £10 million.

I would then introduce attractive measures to foreigners to come to the UK with their businesses and wealth. Under the current non-domiciled rules, foreigners are encouraged to live in the UK but to leave their wealth and businesses abroad – ummmmh!

Furthermore – and probably most controversial – I would amend the penalty regime for non-payment of tax so that there is no minimum penalty of 100% tax. There are a lot of entrepreneurs who will be investigated and ordered to pay tax and penalties when they have made a genuine mistake, such as to make a gift of an asset full of gain without declaring the capital gain to be taxed. Most people can be excused for not thinking they have made a gain if the asset has not been sold.

The tax law is now extraordinarily complex and most professionals, let alone our clients, can make genuine mistakes. There is no relief from penalties a genuine mistake is made. The minimum penalty is still 100%

It is often assumed that the rich do not pay tax because they engage sophisticated tax professionals to help them cheat. The reality is that tax payers now need to engage the best tax professionals to make sure they pay the right amount of tax – while making the best use of such reliefs and exemptions as are available.

Tax is now too expensive to get it wrong.

I am optimistic however that by cancelling the November budget, until after the furlough scheme has ended and we have left the EU, the Government will see how badly hit businesses are in this country, and how dependent we are upon them to build up our economy that it will take such measures as are needed to get business back on track which means giving tax incentives to invest and grow, not to raise tax rates and squeeze the innocent taxpayer who made a mistake.

If you would like to join our group, simply register and sign up to Caroline’s Club by clicking here.

Zoom – speed networking

Last Thursday we had our second Zoom – speed networking - session of Caroline’s Club members.

Each member was asked to introduce themselves and give a client story – stories are 5 times more likely to be of interest and are 1,227% more likely to be remembered.

Deborah Lawal, a lawyer with GFOS started off by telling us a little about what she was learning at her MBA course. Interestingly, most of the really successful businesses now; Netflix, Zoom and Uber started during or soon after the recession. 

Deborah was recruited to GFOS by David Nield a professional recruiter with VGS. David told us that many recruitment agencies do not consider employees who may be going through a hard time, but these are just when people most need to find a job and are likely to give it everything they have got. Post lockdown there will be many more people desperate to find work – following the much-expected wave of redundancies in the Autumn. I am sure David will be super busy

Martin Territt, former EU ambassador to Ireland, has numerous clients across a wide range of business and personal issues – he spoke about a matter affecting the border between Bulgaria and Greece. His skill and experience are to find the right people to engage in the EU to make a difference. 

I said that his services should be engaged to thrash out the breaches of personal data protection in the automatic exchange of information.

I told a short client story about a case with which I am currently involved and have worked with both Alison Parry head at Intertrust in Guernsey for UHNW families and Ross Birkbeck a tax barrister at 15 Old Square tax chambers. The client came to me to set up a ‘Family Office Special Purpose Trustee’ to protect his business during his lifetime but also after his death, from family disputes and creditors.

Andrew MacKenna former Tax Inspector and head of compliance and offshore trusts told us that HMRC is now super aggressive, and some clients cannot stand it, preferring to pay the tax rather than continue with the dispute. 

Ross Birbeck made an interesting point that very often to get some resolution with HMRC the only way to resolve the dispute was to get in front of a Judge as quickly as possible. He  told us that he is involved with several investigations looking into whether a person is really non-UK domiciled or not – and he told us the extraordinary lengths HMRC will go into in their questions – such as where did they spend Christmas fifteen years ago!!!

Ross also asked Andrew whether the inspectors are told to be aggressive – no said Andrew, but they are tasked to bring in tax and penalties. 

Furthermore, Andrew said, all inspectors have a mind-set that the only reason why trusts are set up offshore is to avoid tax, which in my experience is not the case – asset protection is usually of more importance than tax avoidance.

Alison Parry spoke of a matter on her desk of a wealthy family which has run out of income to maintain its lifestyle and she is finding ways with her clients in how to resolve this.

I am sure that in the months to come it will not only be Alison’s clients who will be looking for cash to maintain their lifestyles. 

And lastly, we finished the session with a general discussion. I suppose what I found staggering was the phenomenal amount of personal data which is currently being held by Governments across the world – and not just on the rich, but on all of us. The Australian Government for example knows of every payment which enters or leaves its country. 

At the moment each country works on its own, but it is only a matter of time before they will work together and at this stage there will be nowhere to hide, no crack to fall into and no shadow into which our clients can slip. 

I hope this gives you a flavour of what to expect on our Zoom – speed networking session. The next one is on Thursday 22nd October – I look forward to seeing you there.

If you would like to join our group, simply register and sign up to Caroline’s Club by clicking here.

Telling stories

In my book ‘Reimagining the Role of the Private Client Industry’ I say ‘Case studies are probably the most underused and yet best way to win business. They are five times more likely to be read and 1,227% more likely to be remembered.

As I say in my podcast – Caroline’s Club has been built on solid research and the case study is used to engage our network on our matched speed networking events – next one is on Thursday at 11.00 – and can also be uploaded onto your profile – a functionality which comes online this week

Given that I cannot expect anyone in our network to write case studies unless I not only written them but also uploaded them – I decided to use my note this week to share with you six of my own case studies.  Remember in writing a case study, try to make it human and wherever possible arouse an emotion – lust, greed, disgust, sympathy, surprise – it makes for a better story and is more likely to be remembered.

Below is an extract of one of my case studies.

Case Study 6 on ‘Paddy’:

Paddy is a resident in the Caribbean with a considerable luxury lifestyle business with numerous clients in the US.

When he first started out in business, every new business venture associated with the business was formed through a different corporate entity and trust. When I began to work with him, he had three sheets of paper with thirty companies and over ten trusts with different trustees

His concern was that if a client sued one aspect of the business the other sides would remain protected and if one professional trustee went ‘rogue’ the other sides of the business would remain in tact. Given that so many of his clients were based in the US, it was only a matter of time, he thought before he was sued.

However, although the structure was great in protecting his assets it was not good security for any bank which he wanted to use to raise funds to expand.

I suggested that we form for him a Family Office Special Purpose Trustee vehicle so that he could control his empire with his own advisers and then consolidate the ten trusts into one with just one holding company.

We put this in place fifteen years ago – and it has served Paddy and his business admirably well.

To read further case studies, click here and view my profile.

Click here to listen to the new podcast of the week.

Episode 33 -

The Success Behind the Story, Caroline Garnham: GFOS

In Episode 33, we hear from Caroline Garnham the host of the Show and founder of GFOS, a private client law firm focussed on clients; a Culture of Care. Caroline speaks on the success behind her story. Did you know that, despite having written for the Weekend Financial Times for twelve years contributing ten articles a year – in which she pioneered the benefits of offshore trusts for non-UK domiciled individuals and how to use trusts offshore to avoid capital gains tax – Caroline did not win one piece of new business – not one.

Doing Deals

Taxing the rich post lockdown is now the most consensual proposition in politics. Surveys for Rainer Zitelman’s recent book ‘The Rich in Public Opinion’ found that large majorities in the US, UK, France and Germany backed ‘substantially’ higher taxes for millionaires.

It is hardly surprising therefore that the Office of Tax Simplification, an independent arm of the Treasury, has been asked to identify opportunities to ‘simplify’ capital gains tax in relation to individuals and small businesses.

The word ‘simplify’ is a euphemism for ‘raise’ taxes from capital gains tax, but how will this affect the backbone of our economy – our entrepreneurs?...

Bear with me as I explain how the existing system works and how it is now likely to be changed.  

Income tax allows an individual £12,500 the ‘annual exempt amount’ before paying any tax. Income in excess of this up to £50,000 more is then taxed at 20% ‘basic’ rate. If taxable income exceeds £50,000 the ‘higher’ rate goes up to 40% on the excess, and any taxable income above £150,000 an ‘additional’ rate of 45% is charged on the excess.

If during the year a capital gain is made such as on a sale – or a gift - of a capital asset, such as an investment or property, (other than your main residential home) – and a gain is made i.e. the value of the asset when disposed of is higher than what it was when acquired – this gain is chargeable to capital gains tax to the extent it exceeds an annual deduction of £12,300.

The chargeable gain is then added to the taxable income for the year to find out what ‘tax bracket’ the gain is in. There are two brackets – 10% if the taxable income and chargeable gain does not exceed £50,000 and then any gain when added to income exceeds this is charged at 20%. (Residential properties are charged at 18% and 28% other than your main home)

So, if you have income of £32,500 (first take off the annual relief of £12,500 and other exemptions). The taxable income for the year is £20,000. If during this year a gain is made of £212,300. The gain element is taxed by first taking off the £12,300 annual exemption. The next £30,000 of the capital gain is taxed at the ‘basic rate’ bracket at 10%, leaving £170,000 to be taxed at 20%.

As can be seen the rates of capital gains tax are currently much lower than for income tax.

Given the current trend of thinking post lockdown – the most likely outcome of the ‘simplification’ review is that capital gains rates will be realigned to follow the income tax rates which could mean the abolition of the capital gains tax exempt amount of £12,300.

The abolition of the annual exempt gain will however hit the elderly who have retired and are living off their savings, taking profits on good performing stocks to supplement their meagre dividends given low interest rates and poor business performance post lockdown. Most of these people do not pay capital gains tax because their gains do not exceed £12,300. These people could hardly be called rich!!!

The other aspect to factor in is that as the rate is increased so the churn of capital assets will go down and the amount of gains realised will diminish.  This will affect the businesses which buy and sell passion investments and the fund managers of listed company stocks and shares

The third area of concern is the entrepreneur which we covered last week. Traditionally, the rationale for taxing capital gains less aggressively than income is to encourage the entrepreneur to take risks; to re-invest in the business or to hold onto the business for longer to get a higher gain taxed at a lower rate of tax.

Our entrepreneurs are the backbone of this country’s economy and collectively they are the country’s biggest employers. Many of these entrepreneurs have already been hard hit by lockdown and without the incentive of lower rates of tax – could just throw in the towel.

For this reason, I think there is justification for introducing a higher tax rate for gains above £150,000 but not at 45%, or if it is to be that high to reinstate the entrepreneur’s relief at £10million.

Last year the Government slashed entrepreneur’s relief from £10 million to £1million and renamed it ‘Business Asset Disposal Relief’. This relief is a lifetime relief, so for the serial entrepreneur who has already made £10million of gain on his own business there is no further relief. But this relief was well targeted and for many the jewel in the crown worth fighting for.

I have no concern with ‘simplifying’ capital gains, but to be well received it needs to target the rich not the elderly or the entrepreneur.

My podcast professional of the week is Nick Harvey Chief Executive of Highstead Partners which specialises in corporate finance. Their aim is to nurture the entrepreneurs behind the businesses throughout the lifecycle of a business – I asked him for his opinion on how a forthcoming recession and change in capital gains tax could affect his clients, in his opinion raising revenue from capital gains tax is just a pimple on the backside of the elephant of debt, and no entrepreneur should try to take profits ahead of a tax raise – the business growth is the only factor to focus on.

Click here to listen to the new podcast

Episode 32 -

Doing Deals, Nick Harvey: Highstead Partners

In Episode 32, Caroline Garnham talks to Nick Harvey, Executive Chairman of Highstead Partners, which specialises in corporate finance. Their aim is to nurture the entrepreneurs behind the businesses throughout the lifecycle of a business – Caroline asks Nick for his opinion on how a forthcoming recession and change in capital gains tax could affect his clients, in his opinion raising revenue from capital gains tax is just a pimple on the backside of the elephant of debt, and no entrepreneur should try to take profits ahead of a tax raise – the business growth is the only factor to focus on.