Family moving abroad? Buying property? Beware local tax laws

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Want to buy a nice flat or a yacht in Britain? For wealthy individuals, moving assets into the United Kingdom may seem counterintuitive right now — given its searing summer heat wave, skyrocketing inflation and ongoing battles over Brexit and who should be its next prime minister.

But high- and ultra-high-net-worth families often look beyond today’s headlines, says Robert Fidgen, a British tax lawyer and family office relationship manager at Stonehage Fleming, which manages more than US$75 billion of families’ assets.

“Historically, the U.K. has been attractive for cross-border investment,” Fidgen says.

Though Stonehage Fleming has offices around the world, including Canada, it’s easy to understand the firm’s affinity for Britain. It is descended from a firm founded by banker Robert Fleming, grandfather of Ian Fleming — yes, that Ian Fleming, the creator of James Bond. The spy novelist’s nephew Matthew is a partner.

Fidgen says one of the keys to buying assets or even moving to Britain in a tax-efficient way is to understand that its tax system distinguishes between people who are residents and those who are domiciled.

Residence versus domicile for tax purposes

“There’s a difference,” he explains. “Residence covers how many days you actually live in a particular country; you’ll be taxed for when you live there.”

A person’s domicile is more permanent — it’s their home base and may be somewhere else. The domicile is where they would normally pay taxes were they not residing in Britain for a while (or anywhere else they have moved).

In the case of Britain, individuals who move there can be residents for a while (how long depends on each person’s particular immigration status). They can maintain their domicile somewhere else and be taxed only on the funds or assets they actually bring into or acquire in the United Kingdom.

Tangible assets such as real estate

Fidgen says that typically the international assets that ultra-high-net-worth clients that he and Stonehage Fleming advise are not necessarily business or investment assets — though the firm also manages these. More often his clients rely on him to advise and manage tangible assets such as real estate.

“It may be a family whose daughter is going to university in London and they’d rather buy a flat than rent one, or a family that wants an apartment in Milan or Paris,” he says.

“Those assets aren’t being bought necessarily to generate returns. But they do come with specific reporting and tax obligations which have to be managed,” he says.

‘Toys’ such as yachts and aircraft also carry tax considerations

Tax and regulatory considerations also need to be considered for wealthy peoples’ “toys,” Fidgen adds.

“Families sometimes want to buy a yacht or an aircraft. These don’t necessarily earn money, and in fact, they can cost families a lot over time. But sometimes people have particular family reasons for buying these things. Regardless, their costs and taxes still have to be managed,” he says.

Wealthy families also come to experts like Fidgen when they are keen on investing in a particular country or region.

Eyes on the ground are important to understand local rules

“If you tell me you’re really keen on building a property portfolio in a particular jurisdiction, we’ll want to look closely at their property laws — you want to make sure you’re clear on what you’re buying,” he says. Some countries have rules limiting foreign ownership or heavy taxation of foreign owners, for example.

“The other important thing as advisors is that we would only recommend buying in places where we are in contact with experienced advisors on the ground. It’s too easy to buy a property somewhere only to find out that you didn’t really understand the contract or know what you actually bought.”

Acquiring foreign assets in familiar countries such as Britain, the United States or France follows tried-and-true patterns, but even in these jurisdictions complexities can arise, particularly for the wealthy.

“In each case you need to look at what kind of asset a family wants to buy, explain the risks and determine how the purchase is going to be structured. It’s different if it’s a business or a private equity deal or real estate, and it’s different in every country. That’s why we have our go-to people in each place to help us advise,” he says.

The firm has a team that specializes in artwork — advising clients who are buying, selling, insuring, donating or auctioning valuable works.

Succession rules and taxation of estates vary widely by country

Families who acquire foreign assets need to prepare for the future, no matter how unpredictable, Fidgen adds.

“One of the big issues people have to consider is succession — what would happen if you buy a foreign asset and then get run over by a bus,” he says. Succession rules and taxation of estates varies widely from country to country.

Like many people, Fidgen says he’s fascinated by TV dramas such as Succession and Billions, and he strives to make sure his clients avoid those kinds of miniseries smackdown stories in real life.

“There’s a whole overlay of regulations that apply to what you’d think would be a simple purchase, and you don’t want to run afoul of these,” he says.

Move toward global minimum corporate tax

He and other advisors are watching closely the slow movement toward a worldwide global minimum corporate tax of 15 per cent, which has garnered support from 136 countries representing 90 per cent of the worldwide economy.

“It hasn’t happened yet, but we’re paying attention. My personal view is that a minimum global tax will happen eventually, but [US President] Joe Biden is having a lot of trouble getting support for it and so is the OECD [Organization for Economic Cooperation and Development, a club of wealthy nations],” Fidgen says.

He notes that the families that he and other family office advisors deals with, while knowledgeable about the complexity of their assets, still often require expertise, especially when dealing with foreign rules.

“Most often then come to us with a fair degree of sophistication about their assets and the foreign assets they want to buy, and they rely on us to pull it all together,” he says.

More from Canadian Family Offices:

• Avoid Canada’s new luxury tax – buy that car, plane or boat right now
• Going bunkers: What Canadians are looking for in survival structures
• Six more Canadian family advisors and the books that inspired them
• Red flags that a family business succession plan is weak
• Paul Desmarais III: ‘Get training outside of your family business’

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