International Families - A Global Overview

International Families - A Global Overview

As advances in technology and communication contribute to an ever-shrinking world, people are increasingly living an international existence, owning property in several different jurisdictions and dividing their time between them. At the same time, their children are moving to different places and starting lives and relationships in countries with widely differing cultures and legal and tax systems.

Wealthy people who are deciding where to live or invest, or both, tend to make their decisions according to a number of factors that remain largely true across the world. Some of these (in no particular order) are:

  • stability of the economy and tax system
  • security of the person and property within the jurisdiction and a strong rule of law
  • respect for family life and a developed education system
  • a thriving environment in which to do business.

In many cases, not all of these factors will exist in the same jurisdiction. For example, a country may be a good place in which to do business but not necessarily an ideal place to bring up a young family or to own property. Furthermore, the attributes of jurisdictions can change over time, the impact of Brexit on the UK being a pertinent example.

With this in mind, many wealthy people divide their lives and investments between different jurisdictions. As a result, they find that they may be regarded as resident in more than one country for the purposes of tax, and that different systems of law apply to the succession of their property in different jurisdictions. For example, an individual’s domicile may be the critical factor in determining succession to his or her property in one jurisdiction, while nationality or habitual residence may be the key determinant in another. One country may permit complete freedom of disposition over an individual’s estate, while another has strict rules as to the categories of heirs who may inherit property, and in what shares.

Accordingly, it is vital that wealthy families understand the impact of family members moving to, or investing in, property in a new country on the family’s long-term wider wealth and succession plans.

Wealth trends

For many generations, the developed countries of the West were the primary focus of private client lawyers and other professionals focused on individual and family wealth. It was in the West that concepts such as trust law in the common law world and the civil law foundation developed as vehicles to protect and manage wealth for the benefit of generations to come.

This has been changing for many years and, since 2015, Asia-Pacific has continued to lead both North America and Europe in terms of its high net worth population and overall wealth, with Japan and China remaining significant drivers of growth.

In these jurisdictions, as well as those of the Middle East, Latin America and Africa, there is often a focus on strong family values and a tendency to be first-generation wealthy, which leads to difficulties in ceding control by the family patriarch or matriarch to the successor generation and an awareness of the vital importance of a stable jurisdiction in which to locate their wealth.

Particularly in the case of non-common law countries, the law imposes strict inheritance rules upon their assets, either through shariah law in the case of Muslim countries, or a civil law system of forced heirship. While many wealthy individuals are happy to comply with these rules to a greater or lesser degree, they may, nevertheless, wish to maintain some degree of control over the disposition of their property.

Accordingly, they may choose to invest in jurisdictions without such rules and seek wealth structures that can assist them to plan as they wish to. For individuals in all of these jurisdictions, and as a general rule among the wealthy wherever they live, confidentiality and privacy are of great importance.

This tends to lead to a focus on careful structuring of assets through asset-holding vehicles to maintain privacy and protection in the context of a global political climate that is placing increased emphasis on transparency.

Tax and the global fight against its evasion and avoidance

Over the past decade the fight against tax evasion and avoidance and the drive for transparency have become global. Governments realise that as their citizens increasingly hold business and personal interests in different countries, the reach of the tax system also has to become international. In the years since the global banking crisis in 2008, the subsequent recession and ongoing financial problems within certain EU countries and elsewhere, the need for individual countries to refresh their coffers by extracting as much tax revenue as possible has added to their determination to seek out sources of additional tax.

The early targets of the fight were the international offshore finance centres providing low-tax safe havens for international assets. The efforts of the Organisation for Economic Cooperation and Development (OECD), the Financial Action Task Force and more recently the E.U. have borne fruit, forcing such jurisdictions to comply with stringent international regulatory requirements and information exchange obligations in order to avoid being blacklisted as uncooperative tax havens.

The OECD in particular has done much to encourage jurisdictions, whether ‘tax havens’ or otherwise, to sign tax agreements enabling exchange of information between countries regarding the ownership of assets. Initially, in the United Kingdom and other countries, ‘tax amnesties’, both unilateral and bilateral, such as the Liechtenstein Disclosure Facility and offshore disclosure facilities between the United Kingdom and each of its Crown dependencies (the Isle of Man, Guernsey and Jersey), enabled taxpayers to repay their undisclosed tax liabilities, particularly those offshore, with lower rates of interest and penalties than would otherwise have been the case. In the United Kingdom, all remaining beneficial terms ended on 30 September 2018 when new sanctions under the ‘Requirement to Correct’ legislation came into effect in relation to past undisclosed offshore tax liabilities. For the future, new multilateral transparency agreements seek to ensure that taxpayers comply with their tax obligations going forward.

Conclusion

Given the international mobility of wealthy families and the ever-changing global environment it is vital that families put in place plans to safeguard their wealth and ensure their tax affairs are in order. When uncertainty is the only certainty, families cannot afford to “wait and see” before taking action.


The impact of the 2019 changes to non resident CGT on UK property


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