Post-secrecy spotlight on succession planning
Tobias Wehrli, UBS Wealth Management
Increased transparency is likely to encourage the rich to seek out safer jurisdictions offering wealth protection
Private banks are fast “de-risking”, taking questionable clients off their books. HSBC, at the centre of a storm over tax avoidance following a data leak from its Swiss private bank, is carrying out identity checks on thousands of customers in the Channel Islands, looking to close Jersey accounts for customers who do not live there.
This pre-empted a UK Budget announcement promising a new crackdown on tax evasion through stuctures in both Liechtenstein and the UK’s “Crown Dependencies”.
Indeed, the end of private banking secrecy has put an end to the common sloppiness associated with how undeclared assets in secrecy-led jurisdictions are transferred to the next generation.
Today, there is more focus on effective tax planning and making sure that wealth is passed on to the right people, in compliance with local succession laws.
The implementation of the worldwide automatic exchange of information to combat tax evasion – which is the global community’s sequel to the US Foreign Account Tax Compliance Act (Fatca) – is set to bring deeper changes.
Increased transparency will also bring a much higher amount of prosecutions for tax evasion, corruption and litigation.
“Privacy is going to be a thing of the past, as you can’t have transparency and privacy at the same time,” claims James Quarmby, head of private wealth at international law firm Stephenson Harwood, citing the example of the introduction of publicly accessible registers of beneficial ownership of EU companies.
Trusts were and remain an awful mechanism to just hide money. But they can be extremely effective vehicles for succession planning, addressing compulsory share issues and, in many jurisdictions, tax planning
The “moving assets game” will no longer be sufficient to preserve privacy from 2017. As a result, the globally wealthy living in countries where corruption and state interference are an issue, will have to move, if they want protect their wealth and feel safe, states Mr Quarmby.
This flow of immigrants will seek better quality jurisdictions, with robust legislative frameworks and stable political regimes.
Strategies will be devised to capture the new wealthy and more immigration or nationality programmes will be put in place, such as those set up by Malta, Portugal, Gibraltar, and various Caribbean countries offering simple, alternate passports in short time.
The Trust debate
Despite their bad reputation as vehicles for tax evasion, offshore trusts remain effective vehicles for succession planning in many jurisdictions. But in most European countries – where governments offer rich people the possibility to regularise tax positions through voluntary disclosure programmes and tax amnesties – trusts are now shunned by wealthy individuals.
Post financial crisis Europe-based clients have reduced “dramatically their appetite” to structure their wealth via offshore vehicles, notes Tobias Wehrli, head of wealth planning for Europe at UBS. With the exception of the UK, they have little tax advantage in most of Europe.
To reduce risk, UBS has implemented a “substantial comprehensive analysis” of its trust offering, leading to a cull of trust solutions available for Europe-based wealthy clients.
“Trusts were and remain an awful mechanism to just hide money,” claims Marnin Michaels, Zurich partner at law firm Baker & McKenzie. “But they can be extremely effective vehicles for succession planning, addressing compulsory share issues and, in many jurisdictions, tax planning.”
