Scott Kingsley, Senior Wealth Advisor
For high-net-worth individuals, navigating the UK's tax landscape is becoming increasingly challenging. With the Labour government poised to introduce sweeping changes, many are left wondering what’s next. While some reforms, like adjustments to the Non-Dom status, have been anticipated, others - like the potential introduction of an exit tax for wealthy expats - have caught many by surprise.
In this climate of uncertainty, where tax policies seem to shift as fast as the political winds, bespoke tax advice isn’t just a luxury - it’s a necessity. With the budget looming and whispers of further tax hikes, staying ahead of the curve has never been more critical.
As the term suggests, bespoke tax advice is structured around your situation. Tax liabilities, regulations, and returns are becoming more complex globally, not just in the UK. When it comes to high-net-worth individuals, the regulations seem to be constantly changing.
Many high-net-worth individuals will have relatively complex tax situations, including multiple assets and investments across different jurisdictions, and there may also be residency issues. Historically, the UK has been relatively supportive of wealthy individuals moving to the country, introducing the Non-Dom status even if it has been adjusted in recent years.
Under the current situation, those living in the UK who are deemed non-domiciled can protect their overseas assets from UK tax regulations and liabilities. While there are different criteria and conditions to consider, the current basis of the status is that after 15 years as a Non-Dom, you are automatically converted to a UK domicile. This means that your global assets and income are subject to UK tax regulations.
It's important to clarify that bespoke tax advice is helpful not just for those with a Non-Dom status but more generally for high and ultra-high-net-worth individuals.
Tailored tax strategies will take in a range of different assets and income streams, including specific issues such as:-
For those who have business interests, there may also be additional issues to consider, such as potential changes in entrepreneurial relief. There is speculation that the government wants to remove the favourable 10% tax charge on qualifying assets when disposing of a business.
Those offering bespoke tax advice to clients with complex tax situations must monitor and react to UK and global legislation changes. It's not easy keeping up!
It is probably easier to give an example of how bespoke tax advice can significantly impact current and future tax liabilities. The proposed (although unlikely) exit tax in the UK for high-net-worth individuals will give you an idea of the value of bespoke tax advice.
Numerous rumours and counter-rumours that high-net-worth individuals will see an increase in their tax liabilities in the forthcoming budget have caused many people to reconsider life in the UK. To put this into perspective, a recent report by UBS suggested that the number of dollar millionaires in the UK will fall from just over 3 million in 2023 to 2.54 million in 2028. Out of 56 countries reviewed in the UBS report, the UK is only one of four that are expected to see a reduction.
In the weeks and months ahead, you will likely see the proposed exit tax referred to as the “expat exit tax”. While there are no specific revenue forecasts for such a tax, although it is expected to be minimal, the belief is that funds raised would go towards filling the alleged £22 billion black hole identified by the Labour government. This comes at a time when the UK authorities are also changing the Foreign Income and Gains regime, where tax relief will be limited to just four years.
So, we have an unhelpful situation where the UK government is almost sure it will increase the tax liabilities of high-net-worth individuals. Where some may consider leaving the UK, the government is said to be considering an exit tax, although there is little in the way of details yet. Many suggest this is akin to chasing people out of the country but charging a toll at the exit gates before they can leave.
Discussing your options, plans and tax implications, even at this relatively early stage, can help clients formulate their plans for the future. Some of the issues to consider when looking at mitigating liabilities would include:-
It's also important to recognise that countries (mainly developed countries) tend to follow each other regarding new taxes and changes, and sometimes it can be a race to the bottom. For example, there is an exit tax in France. However, this only applies to those who have been residents for six of the last ten years. The French expat tax regime extends for five years, exempting employment income and wealth located/originating outside of France from domestic taxes.
The French tax regime for high-net-worth individuals appears far more welcoming, although this could quickly change. However, with France just across the sea, might this become an attractive destination for UK high-net-worth individuals looking to protect their wealth?
A bespoke tax adviser is a specialist position, providing advice and guidance to high-net-worth individuals on domestic and international tax changes. Understanding the financial affairs of high-net-worth individuals requires an appreciation of the funding involved and the often complex life people can lead. As a tax adviser, you will need several skills:-
There is often a window of opportunity between the announcement of tax changes and their implementation. A tax adviser should take a proactive approach to these changes to protect their client's wealth.
We only need to look at the UK and the appointment of the first Labour government since 2010 to see what many would describe as a substantial regulatory shift. While it's impossible to see into the future, putting protective plans and strategies in place is crucial.
Over the years, the UK tax system has increased in size and complexity. Understanding taxes and implementing client strategies requires constant learning. Imagine providing bespoke tax advice with one eye on the future - not easy.
Risk management is crucial, whether considering relatively straightforward investments or more complex tax strategies. Understanding the potential risks and presenting them to clients in an easy-to-understand manner is essential. This ensures that there is no confusion and that all parties are aware of the upside and the potential downside.
Maximising business tax efficiency is vital, whether reducing corporation tax by increasing pension contributions or considering different tax-efficient ways of extracting profits from your client’s business. Various tax-efficient ownership structures may also mitigate what, for many high-net-worth individuals, is a rising tax charge.
In order to get the most out of your tax adviser, there needs to be a high level of trust, respect, and understanding between adviser and client. A financial adviser can only provide the appropriate advice when they fully appreciate a client's lifestyle, connected parties and broad finances.
Aside from the topics mentioned above, as a tax adviser, you will need to be comfortable with advising and implementing complex situations involving:-
In a world of more restrictive tax regulations, ever-changing details and growing liabilities, tax advisers, on occasion, may also need to help negotiate settlements with tax authorities such as HMRC.
Traditional tax planning is a long-term strategy, with the benefits often experienced decades later. Consequently, keeping up with regulatory changes is essential to position your income, assets, and overall wealth in the most favourable light. The situation can be even more complex regarding tax planning for high-net-worth individuals, with assets often spread across the globe and potentially numerous overseas income streams.
Advisers and clients must maintain constant contact because any changes in a client’s private or working life could significantly affect their finances and tax obligations in the future. Long-term tax planning for high-net-worth individuals could include trusts, offshore structures, and other complex structures, so it's important to appreciate the different tax regulations worldwide.
With years of experience in bespoke tax advice, I’ve worked with individuals across the wealth spectrum, and one thing is clear: the more wealth you have, the more intricate your tax situation becomes. But complexity isn’t always tied to fortune - everyone's tax needs are unique. That’s why no tax management strategy remains static. Even minor, timely adjustments can be crucial to staying ahead of ever-changing regulations.
Take the UK, for example. The confirmed changes to Non-Dom status and the looming threat of an exit tax are stark reminders that proactive, tailored tax advice is essential. In a world where tax rules evolve rapidly, one constant remains: bespoke advice is key to preserving wealth and minimising liabilities.
If you would like to discuss any concerns about potential tax changes and your finances, please get in touch today. It costs nothing to have a conversation, and it could be one that changes your life.