The policy upheaval following the change of government in July has ushered in an uncertain era for UHNWs based in the UK. Many have revisited their affairs as the Government gets ready to replace the remittance basis regime and introduce the new foreign income and gains (FIG) regime from next year, just as others have considered whether the possibility of rising capital gains tax rates could lead to an expensive liquidity event as a UK resident.
Yet the political change could provide a valuable ‘window of opportunity’ for UHNWs to revisit the way they plan their financial affairs, says Jeremy Franks, HSBC Global Private Banking’s head of wealth planning and advisory for the UK and EMEA.
‘We are well-positioned to help clients with the uncertainty that comes with a change of government,’ he says. ‘You can’t look at tax in isolation – you have to put it into context. It’s not just inheritance tax (IHT) or capital gains tax (CGT) exposure. You’ve got to consider: do you want to pass down your assets? Are your children mature enough, and at a stage in their life where they are able to take control and ownership of the family wealth?’
Franks, whose team supports clients from bases in London, Paris, Dubai, Düsseldorf and Geneva, says finding a sense of purpose around wealth, and taking a longer-term perspective can give UHNWs strength in uncertain times.
Conversations with purpose
Karina Challons, HSBC’s managing director for wealth planning, says that many of the private bank’s clients are often ‘so busy creating wealth that they can neglect their own needs’ and forget about family planning.
‘In many cases, their affairs are not up to date. In times of uncertainty, conversations around purpose can help to focus the mind, and right now we’ve never been busier with clients using us as a sounding board.’
While HSBC’s wealth planning team does not offer formal tax or legal advice, Franks says the ‘tax informed team’ can help to fine-tune clients’ assets and structures, while helping families to consider philanthropic projects, how to bring the next generation into a family business, and building a legacy.
For Challons, the starting point is to have in-depth conversations with a wealth creator, to assess their financial and emotional needs. ‘Unless you can sympathise with the matriarch or the patriarch, it’s not going to work. Understanding family sensitivities allows you to be well-positioned to help your clients.’
Understanding family needs for wealth planning
Challons tells Spear’s she has worked with entrepreneurs who have lost a sense of identity after selling a family business. ‘I’ve had clients who have bought a business they grew back, only several years later, because they were miserable. Often it can be difficult to navigate life after a successful business venture.’
Some, however, may want to consider the freedom that can follow an exit event. Franks says the private bank can offer advice on structuring the disposal of a business, and looking at the tax implications of receiving a cash windfall. ‘Their options could include selling a minority stake and staying working, or a management buyout. They could go down the private equity route, or we could offer advice finding a trade buyer.’
When involving the second generation in a business, challenges can occur if the families don’t have alignment in their goals. According to HSBC’s Global Entrepreneurial Wealth Report, only 38 per cent of entrepreneurs have started the process of transferring their wealth and engaging with the next generation – with a lack of preparedness opening up the possibility of conflict further down the line.
Engaging the next generation
Often, conflict can occur when it is assumed what path the next gen will take with their careers – but it’s times like these where Challons says she relishes acting as a ‘trusted adviser’, helping to bring family members round the table.
‘If the family members can take a step back, and all agree on basic principles, they can find it easier to listen to each other’s concerns. Following a path that doesn’t suit a family member will only increase their chances of not finding
fulfilment.’ Challons ‘is fantastic with these sensitive issues’, Franks adds. ‘She encourages families to think: “How are my needs going to align with others?”’
Only 36 per cent of international entrepreneurs surveyed by HSBC openly discuss their wealth plans with family, highlighting the importance of trusted advisers who can steer a conversation on inheritance, family business governance and succession.
Many second-generation family members want to utilise their significant inheritances as a ‘force for good’, Franks says. Rather than staying in a family business, they may spearhead philanthropic projects, work in the third sector, or engage in impact investing – but this may require family governance changes that a trusted adviser can oversee. ‘[The next generation] want to ensure they do the right thing and contribute to society, and add to the communities they live and work in,’ Franks adds.
A global network of expertise
As clients begin the process of revisiting their affairs, HSBC’s wide international network of advisers can give guidance on relocation and multi-jurisdictional financial planning.
The uncertainty that comes with political change is not just confined to the UK, with recent and upcoming elections in Asia, Europe and North America contributing to shifting wealth planning priorities for UHNWs at home and abroad. Yet Franks says his global team’s regular get-togethers allow them to share valuable wealth planning insights from across different regions.
‘Just yesterday, we had a global Wealth Planning “Town Hall” meeting,’ he enthuses. ‘These meetings allow us to discuss live issues and trends, and help us to share knowledge and experiences for the benefit of our clients.’
Challons adds: ‘We can provide coordinated support to clients with accountants, lawyers, and other professionals in different jurisdictions. This can give clients the support they need as they move around the world.’
Right now, shifting political sands are causing uncertainty. The Autumn Budget on 30 October may provide clarity for UHNWs as they plan their affairs. Though Franks cautions that the fast pace of policy change may continue throughout the next parliament and beyond, underscoring the need for regular advice.
‘It is a dynamic situation, and policy may change in the next few years. But we are well-placed to offer clients the full breadth of planning services from across our private bank,’ Franks says.
Taking a longer-term perspective, and engaging with an advisory team with many decades of experience, he adds, can give clients the confidence that their wealth structures and family planning can weather any future uncertainty.
HSBC UK Bank plc has no responsibility for providing legal or tax advice. This material is issued by HSBC UK Bank plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Any reference to tax is based on our understanding of current legislation or practice, which may change and is dependent on the individual circumstances of each client. This is for information purposes only and does not constitute tax advice. Opinions on the tax characteristics of some investments can vary amongst legal and tax advisers. You should always seek professional tax advice when considering your investment strategy. Eligibility criteria apply to open an account with HSBC Global Private Banking.
HSBC UK Bank plc is registered in England, number 09928412. Registered office: 1 Centenary Square, Birmingham
