Katie Potter, associate at law firm Charles Russell, discusses why ultra high net worth individuals continue to flock to London - despite the fact that the UK is by no means a low-tax jurisdiction.

Katie Potter, associate at law firm Charles Russell, discusses why ultra high net worth individuals continue to flock to London - despite the fact that the UK is by no means a low-tax jurisdiction.

Recent research by wealth sector analysts WealthInsight shows that there are now 4,224 UHNW individuals living in London, with 10,000 such individuals in the UK in total (the firm defines UHNW individuals as those with over $30 million in net assets). For most people, the UK is not a low tax jurisdiction, nor is the UK the world’s biggest economy, yet the country (and London in particular) continues to draw in wealthy individuals, from increasingly international backgrounds. 

Security

Parts of the world are troubled at present. London is not.  UHNW individuals like, and need, to have a base somewhere secure in case trouble flares in their home countries; London fits the bill perfectly. 

Property investment in London

There has been continued steady growth in the traditional “prime” London real estate areas of Kensington, Mayfair, Knightsbridge, even throughout the recession.  The perceived safety of this type of investment, combined with the prestige of owning property in these areas has contributed to growth. 

For UHNW individuals from regions such as China, Russia and the Middle East, London property represents not only a good return on an investment, but also a safe haven against a background of political and legal uncertainty in their home jurisdictions. 

Traditionally, UK property of UHNW individuals has been owned by offshore companies, sometimes with a trust as well, for reasons including confidentiality, succession planning and inheritance tax planning.  The introduction from April this year of an annual charge and capital gains tax on certain higher value residential properties held in this way means that property purchases are less likely to be structured in this way in the future; however, according to the agents the new regime has not affected demand for prime Central London residential real estate.

Immigration

Although net migration has become very much a political issue in recent years, the UK Government is still understandably keen to attract UHNW individuals to our shores.  The (Tier 1) Investor visa scheme is designed to encourage UHNW individuals to move to, and settle in, the UK. 

The main requirement to obtain an Investor visa is investment of at least £1 million ($1.52 million) in the UK, 75 per cent of which must be in specified UK investments, such as certain UK companies and government bonds.  If these investments are maintained and the applicant spends at least half of the year in the UK, after five years he or she can apply for permanent residency, or settlement, in the UK.  There is the option within the Investor scheme for an accelerated route to settlement in the UK, where an investment of £5 million or £10 million is maintained throughout the visa period.

Tax and living in the UK

Although for most people who live here, the UK could not be described as a low tax jurisdiction, for well-advised, internationally-mobile UHNW individuals, the UK can be very attractive in fiscal terms.   

One way in which the UK government encourages UHNW individuals to move to the UK is the “remittance basis” of taxation.  Broadly, the remittance basis rules provide that a non-UK domiciled, UK-resident individual will only be subject to UK tax on UK earnings and capital gains, as well as on any income or gains “remitted” to the UK from overseas.  A remittance basis user is required to pay an annual charge of £30,000 after seven years of residence in the UK, if they wish to continue to claim the remittance basis at that point, rising to £50,000 per annum after 12 years.

If an individual has investments overseas which they will not need to draw on to support themselves whilst in the UK, this is an attractive option.  Income and gains realised before an individual becomes UK tax-resident are generally not subject to UK tax even if brought here – but careful planning is necessary to ensure that such funds do not accidentally become mixed with taxable funds.  

The tax landscape for those coming to the UK is certainly more challenging than it was in the past, following the tightening up in 2008 of the remittance basis rules, and the introduction of the new property taxes mentioned earlier.  However, well advised UHNW individuals can still live in the UK very tax-efficiently and the UK tax system remains much more benign than the system which applies in a number of obvious “competitor” jurisdictions.  The Government may see the challenge facing it as one of how to increase the tax take from UHNW individuals without “killing the golden goose”.

Access to English Courts

Much has been made of the concept of “forum shopping” – choosing the most beneficial jurisdiction to start a piece of litigation – and its impact on the London courts.  Divorce and defamation are the most commonly cited instances of this practice, although in reality the practice of foreign citizens suing each other in the UK courts is less widespread than often reported.

Having said that, access to the UK legal system, importantly a system which is not often tainted with corruption charges in the same way as courts in other jurisdictions sometimes are, is an advantage of living in the UK, particularly for UHNW individuals with complex business interests.  The UK courts are used to dealing with international litigation, as we have seen with high-profile Russian cases recently, and in some instances go as far as to apply the law of another country when making a judgement.

Quality of life

Hardly a legal point – but perhaps the reason why UHNW individuals are so attracted to London is that it is a highly-desirable city in which to live.  It is geographically convenient for much of the world, benefits from world-class schools, restaurants, and cultural facilities; and it is also home to some of the world’s leading advisors within the financial services community. 

For so long as all of these benefits remain, there is little reason to doubt that London will continue to thrive as one of the world’s leading “global cities”.