Local high net-worth individuals are not escaping the impact of the current pressures. Narinder Paul, partner at KPMG in Birmingham, looks at their concerns and highlights what needs to be considered.
The past 12 months has given high net-worth individuals a lot to think about. Changes to the tax treatment of non-domiciles, the reduction in capital gains tax and the turbulence on the financial markets has led to concern for individuals looking to protect and invest their wealth.
There is no doubt that managing financial affairs in the current climate is difficult and investment and tax strategies need to be revisited to ensure wealth preservation is achieved.
Earlier this year the Chancellor revised the proposed changes to the non-domicile legislation resulting in a £30,000 fee for all those who opt out of paying UK taxes on overseas income that is not remitted, in other words, brought to the UK. While this issue is clear, it is my belief that the devil will be in the detail.
At present there is little clarity on how issues such as the transfer of funds to pay for example, rising mortgage costs of a UK property, might be handled
In addition, the new provisions also impact on UK service providers such as investment advisers, accountants, lawyers and so on, who may need to put provisions in place such that payment of their fees do not create inadvertent tax charges for their clients.
As a result, the actual impact on non-domiciles’ finances is unclear and when you add to that the rising cost of living, this is something that will soon rise to the top of the agenda for many high net-worth individuals.
What is clear is that there are a number of potential areas of difficulty within the new rules, some of which may impact on arrangements that have been in place for a number of years and comprehensive review of their financial vehicles, including offshore trusts, need to take place otherwise significant additional tax costs will be incurred.
High net-worth individuals must also be taking stock now of their investment portfolios in order to accommodate the changing environment.
Two popular areas for investment in recent years have been the property market and the stock markets – both of which are currently experiencing the difficulties brought about by the credit crunch.
Turbulence in the stock markets has meant that over the past six months the FTSE All-Share index has fallen by nearly 10 per cent, having a severe effect upon portfolios that are heavily exposed to the equity markets.
When you add this to the woes currently being experienced within the property market, it is easy to see why an investment review is required.
It is possible that over the next 12 months we will see individuals selling assets in order to supplement their income positions as well as looking at investing in more risky ways in order to benefit from the potential for higher returns.
The tax implications of this should also be considered with all disposals, where gains have been made, being subject to an 18 percent Capital Gains Tax.
There is no doubt that the current economic climate will be with us for the foreseeable future. Whether an individual decides now is a good time to change their approach or hold out will depend upon the level of risk and portfolio options they currently have. Either way, they should take the time to review their current situation.”