A surge in enquiries about wills, burgeoning tax bills and contracting portfolios are among the trends emerging in the Covid-19 crisis, writes Rasika Sittamparam
‘The pandemic is affecting the very fabric of our society, our freedoms and of course the economy,’ observes Miles Dean, who heads the international tax division of Andersen Tax. He notes that many individuals, trustees and family offices are not immune to the effects of Covid-19 on the global stock markets, and has seen a flight to cash and precious metals instead.
Dean advises HNWs to consider harvesting the losses on declining assets now, to avoid a Capital Gains Tax (CGT) hit before the end of the tax year on April 6. This advice to sell the shares and bank the losses where appropriate is echoed by Spear’s top ten tax lawyer James Quarmby, private wealth head at law firm Stephenson Harwood.
He has seen most of his clients suffer from 20-30 per cent falls in the value of portfolios and says: ‘One option is to sell the shares and bank any losses before the end of this tax year as this means they will be available to set against any other gains realised in this tax year. This is probably a smart move if you think that your portfolio will grow again after the crisis has passed.’
He adds: ‘I have seen a number of investors bail out now, crystallising losses, thinking that we are far away from the bottom of the market.’
While the financial health considerations will certainly be on HNW minds, there are logistical hoops that non-doms will have to face, too. Another Spear’s top ten private client accountant Mark Davies, founder of the boutique Mark Davies & Associates firm, has seen an unexpected influx of enquiries from global HNWs who are in the midst of plans to move to or away from the UK.
Brits who are no longer tax resident in the UK, are finding themselves grounded by the government’s social isolation guidelines, as well as illnesses linked to Covid-19, which will keep them in the country for longer.
‘They may be able to claim exemption for “exceptional days”, but HM Revenue have not given a carte blanche on this,’ Davies says. This exemption only gives non-residents an additional 60 days, after which tax residency will be assumed – resulting in ‘high tax bills’ for some HNWs.
This has also caused ‘uncertainty and anxiety’ among the clients of Alex Ruffell, a tax, trusts and estates partner at Irwin Mitchell. ‘While HMRC has confirmed that some days spent in the UK will not be counted when assessing tax residence, this concession will not apply for all purposes,’ she says.
Whereas non-doms who are unable to move to the UK in the current climate, will cause a further dent to the country’s economy, Davies says, especially since the period between January 1 and April 5 is normally a ‘tax holiday period’ for incoming HNWs. ‘This will have a significant impact on our economy, as arriving non-doms may put off moving to the UK for another year or indefinitely.’
There are also discrepancies between global jurisdictions in how those affected by Covid-19’s travel restrictions will be taxed. As the government now executes its £75 million rescue flights to bring stranded Britons back, there are reasons for HNWs to look back at the jurisdictions they had overstayed in, to check that they have complied with local tax rules.
Greg Limb, who heads KPMG’s private client division, thinks that offshore rules are worth another, thorough check. ‘Some countries, for example, allow you to ignore reasons beyond your control as days that count towards your taxable presence,’ he explained in a statement. ‘Others may not be so generous, and it will be interesting to see how tax authorities around the world respond to what will hopefully be a once-in-a-generation pandemic.’
There are also wills to revisit, says Fiona Poole, from law firm Maurice Turnor Gardner. ‘Wills can still be reviewed, updated and executed validly,’ Poole says of the current surge in will requests, notwithstanding fears that social distancing rules might affect this because of the need for two independent witnesses.
James Quarmby has also heard that the tax industry body STEP is asking the government to review this requirement for wills in the light of the epidemic. ‘Perhaps the answer is to have the equivalent of a “soldier’s will” for people in isolation,’ he suggests. These allow wills to be signed and dated by the testator himself, as a ‘soldier’ would when in imminent danger.
Poole reminds business owners already worrying about the survival of their firm and their staffs’ employment, about the government’s ‘time to pay’ arrangements, which effectively offer companies additional breathing space to settle their tax bills. This will be a much-needed relief to some. In addition there is a ‘variety’ of grants available to support businesses will be a comfort too.
‘In these turbulent times, there’s a real feeling of being “in it together”,’ Poole reveals about the private client industry. ‘More than ever, collaborative knowledge-sharing between industry peers will be of vital importance as we continue to untangle the impact of Covid-19 for our clients, and the extent of the allowances that HMRC is prepared to make.’
More importantly, Poole is heartened by the philanthropy that is emerging from within the private client space, which contributes to the wider battle against Covid-19. ‘Those looking to make a real difference to the fight against coronavirus, can do so with well-planned, sensibly structured philanthropic endeavours.’