Vying political parties and a constantly fluctuating international climate are driving firms to further develop their private wealth practices in the UK in a bid to capture work from the lucrative sector.
Most recently, Addleshaw Goddard launched a private wealth finance offering in London with the addition of partner Laura Uberoi from Macfarlanes to service private bank, family office and high net worth clients around the world. The hire comes as firms including Maurice Turnor Gardner, Hunters Law, Mishcon de Reya and Stephenson Harwood are also recruiting for their burgeoning practices.
It’s very much ‘a candidate’s market’, according to Wilfred Vernor-Miles, joint head of the private client department at Hunters Law. And this looks set to continue, driven in part by political uncertainty ahead of the upcoming UK general election, with clients looking for guidance on how to navigate their affairs both now and in the future.
With this in mind, Vernor-Miles is urging firms to look after their private wealth practices and ‘really invest in the next generation of partners’: with demand high and work showing no signs of stopping, it is ‘all the more important for private client practices to look after their excellent, younger colleagues’.
‘All about the election’
Right now, the UK private wealth sector is ‘all about the election’, according to Andrew Goldstone, a private tax partner at Mishcon de Reya. And, for a lot of the private wealth sector, the election is all about the non-dom tax regime. Polls are predicting a Labour win and, while Goldstone warns of the ‘danger of advising purely on speculation’, one thing that looks certain is Labour’s pledge to scrap the UK’s non-dom tax regime, should it emerge victorious from the election.
Non-domiciled residents (non-doms) live in the UK but claim permanent residency abroad, meaning that they don’t pay UK tax on their foreign income. The government estimated that there were 68,000 people claiming non-dom resident taxpayer status in the tax year ending in 2022. Plans to reform, remove, or replace the regime are leaving non-doms concerned that they will receive less favourable tax treatment under a Labour government.
Private wealth partners are warning clients to prepare for all possible outcomes. After all, as Goldstone points out, ‘you could have abolition-lite but you might instead have total abolition’. Fiona Poole, head of private wealth at Maurice Turnor Gardner, says non-doms who have been in the UK between five and 10 years are likely be the most affected by changes to the regime. This cohort will have put down roots but may not yet have an ongoing dialogue with their advisors about longer-term plans. Poole advises that this group now need ‘to be thinking like they’ve been here for 10 to 12 years already in terms of pre-deemed domicile planning.’ Non-doms who have been in the country 10 years or more are more likely to already have contingency plans in place, and are likely to be better prepared for changes to the current regime.
There are some steps that non-doms can take – and are already taking – to prepare for different outcomes of the election. Firms have been advising clients on the establishment of overseas trusts, for example. But Jon Conder, a partner with Stephenson Harwood, observes that a lot of clients aren’t doing anything at all and ‘it may be that all they want is validation and reassurance that they’re not missing a trick’.
Conder notes that this is a recurring trend: ‘There was a lot of this around in the run-up to the previous general election – this concept of getting a third-party, an independent eye to look over what they were doing.’
Concerns have also been raised about the impact that changes to the regime could have on the number of people coming to the UK. ‘We used to be the leaders in attracting the world’s wealthy, but we’re a little less so now’, observes Goldstone.
Other countries have been catching up and offering various incentives, including attractive tax regimes, to appeal to high net worth individuals. Malta, for example, operates a similar non-dom tax regime to that in the UK: foreign income not received in Malta is non-taxable, but neither is foreign capital gains – even if received in Malta.
Scrapping the existing non-dom regime in the UK could push ultra-high-net-worth (UHNW) individuals out of the country, or deter more from entering. As Vernor-Miles points out: ‘it is much easier to decide not to come here and choose somewhere else, than it is to leave once settled here.’
Conder is more circumspect, reassuring: ‘they’re not all leaving the country.’ Many non-doms now have roots in the UK, whether family, assets or investments, and leaving would therefore be an extreme resort.
Indeed, research suggests that any reform of the tax regime would only push a small percentage of non-doms out of the UK. A 2022 report by the University of Warwick and The London School of Economics and Political Science estimates that only 0.3% of non-doms would leave the country because of changes in the regime.
As Poole notes: ‘there is plenty of work to be done now for clients moving to the UK, but we’re already seeing an uptick for the next tax year and beyond, despite the threat of Labour making changes to the non-dom regime.’ And there is ‘a particular trend of people or families wanting to come from the US’, she observes. Pushed by their country’s political climate and currency fluctuation, Americans are moving, purchasing property and investing in the UK – a trend which is ‘good news’, for the UK economy and private wealth advisers, according to Poole.
Inheritance tax (IHT) has been another bone of contention between the Labour and Conservative parties. There has been speculation that Rishi Sunak may scrap IHT, in a bid to pull ahead of Labour in the polls.
The IHT rate is 40% on estates worth more than the £325, 000 threshold, and the number of estates paying IHT is increasing; there was a 17% increase in IHT payers from 2020 to 2021.
Although this talk is currently nothing more than speculation, Labour has already confirmed that it would reverse any cuts that the government made to IHT. In a speech given in Bristol on 4 January 2024, Labour leader Keir Starmer emphasised that his party would not support the Tories’ potential plans to scrap IHT: ‘I don’t believe in tax breaks for those who are already well-off when there’s nothing on offer for working people. So, I wouldn’t be doing what they’re floating.’
In reality, with even the date of the election still to be confirmed, there is only so much that people can do to protect themselves and their wealth now. ‘Whilst I think all lawyers will say one must be prepared and take action, one doesn’t want to be too hasty’, advises Vernor-Miles.
Middle Eastern promise
Attention within the private wealth sector is also on the Middle East, as both inward and outward activity increases and clients navigate changes to the economic and political situation in various countries. A number of private wealth teams note an influx of work from the Middle East; practitioners are advising Middle Eastern HNW individuals on various wealth management matters, including tax, overseas properties and inheritance.
Conder notes a ‘rebalancing’ of assets in the Middle East, with Stephenson Harwood clients – and others – keen to secure their assets and protect them from ‘expropriation, or nationalisation or general instability in the region’. Poole meanwhile says she has seen clients in the Middle East ‘professionalising and institutionalising their family office structures more and more’ as a further response to the changes in the region, such as the introduction of a new corporate tax in the UAE, effective from 1 June 2023.
Thanks to events such as COP28 in Dubai and the Qatar World Cup, the Middle East is also becoming an ‘increasingly outward-focusing area’, observes Vernor-Miles, who points to Saudi Arabia in particular as pushing to be a bigger part of the global financial market.
As a consequence, firms are increasing their focus on the Middle East: Goldstone emphasises that it is a continued area of growth for Mishcon and, at the end of 2023, the firm announced the establishment of a Saudi office.
‘The idea that you can hide things… those days are gone… ’
Private wealth advisers are also seeing an increase in tax inquiries from HMRC. Conder links the influx of inquiry work to the fact that ‘the Revenue has a lot more information at its disposal’. HMRC is increasing the amount of data it collects, from employers, for example, as well as from online platforms, such as Vinted, Airbnb and eBay.
Partners urge their clients to take these inquiries seriously. ‘The idea that you can hide assets, bury your head in the sand, assume the Revenue won’t find out – those days are gone,’ warns Goldstone. His advice is that a good practitioner ‘knows the rules and doesn’t offer excess information to the Revenue but definitely gives enough.’
Conder agrees, advising clients to plan carefully, with inquiries in mind: ‘Evasion is illegal and if we come across that we help the client report and pay penalties. But tax planning, mitigation or avoidance is on the right side of the line.’
Staying ahead
Even in the face of uncertainty, there are still steps that private wealth clients can take to ensure stable planning for the future.
Conder shares three starting points that continue to guide him in his advice to private wealth clients. Firstly, he discourages any planning with the family home: ‘Leave the family home in the name of the people who actually want to live in it’ and avoid anything ‘that involves the occupier losing control’.
Secondly, the planning must be clear and understandable. As Conder points out, ‘you don’t want to put clients in a position where they don’t understand things’.
Finally, planning must be proportional and suitable. Conder concludes that it is best to avoid ‘making things overcomplicated and having too many structures’ and to ensure that the effort (and cost) going into the tax planning is proportionate to the level of wealth.