Government policy changes impact the world's wealthy families

With the banking systems of many countries under severe strain in the wake of the global financial crisis, some governments that traditionally sought to attract the world’s wealthy families have responded with revised policies that could lead to increased demands for tax as well as heightened regulation and disclosure.

These measures could, however, create opportunities in certain new jurisdictions, including South Africa.

Eddy Oblowitz, Chief Executive of Stonehage Financial Services - the international group that advises clients on protecting, managing and administering family wealth inter-generationally and multi-jurisdictionally - points out that, “the UK and Switzerland have by coincidence simultaneously unsettled their wealthy and potentially mobile patrons, who may be required to reassess appropriate family financial strategies.

“This comes at a time when many international families are under increased pressure as difficult economic circumstances test the quality of their advisers and the strengths of their business interests and investment portfolios.”

International families, especially those who choose to use financial centres like Jersey, Lichtenstein and Switzerland as a base for trusts and other asset ownership structures face an array of decisions, made more challenging by an unclear legislative and policy agenda. They often select low tax jurisdictions, but the practical realities of life in many of these countries may discourage residence.

“Switzerland and the UK have thus far been the most broadly attractive destinations for residence based on a combination of the tax and lifestyle benefits they have offered. Many families are therefore re-considering the current tax and policy status of these countries,” says Oblowitz.

Other countries that provide attractive tax breaks for foreigners include Canada, Spain, France, Malta, Mauritius, Seychelles, Israel, South Africa and Australia.

Amongst the wealthy considering Switzerland as a residential base, concerns now relate to a recent referendum in Zurich, which resulted in abolition of the “forfeit” system in that canton. Many international families had taken advantage of the system, which allowed them to reside, but not work, in Switzerland and to pay an individually negotiated fixed annual tax.

Oblowitz says worries relate to whether the decision in Zurich forms part of a wider trend. “Particular circumstances evident in Zurich render this concern less well-founded than might at first appear the case. Switzerland continues to offer simplicity and privacy in respect of the tax affairs of its new residents.”

In the UK, he says those enjoying resident non-domiciled status are permitted significant UK tax exemptions. However, in 2008 new rules were introduced which resulted in a greater tax and administrative burden.

“For the very wealthy who are properly organised, the changes did not make the UK a significantly worse jurisdiction in which to reside. However, many have been left with the impression that the UK tax authorities are increasingly hostile and also induced by high tax rates,” says Oblowitz.

He adds that authorities in both jurisdictions will need to decide whether to revitalise the contribution wealthy international families can make to the economies of the countries in which they reside. Economic analysis may conflict with political reality, but if governments conclude that attracting wealthy families is part of the solution, certainty will be the central issue to be addressed.

“In the past governments across the political spectrum have concluded that it is in the interests of domestic tax payers to attract wealthy families,” he says.