ISSUE 12 • 2019
FEATURED IN THIS ISSUE… MAKING TIME FOR ADVICE | TAXING TIMES FOR UK PROPERTY | A PLAN FOR LIFE
BEST UK PRIVATE BANK FOR A FIFTH YEAR IN A ROW Picking up awards is always great, as it’s an independent endorsement of what we do. Plus, we enjoy a good evening out from time to time. We have won over 80 awards in the last 18 years, but what is especially rewarding is when we retain an award from one year to the next. This year is no exception and we have collected two such awards. This year we retained the title of Best UK Private Bank for a fifth consecutive year at the City of London Wealth Management Awards, which were announced in March at a gala dinner at The Guildhall, London. Any award is special, but one that relies on people taking time out of their busy days to proactively vote for us is even better. We truly believe that it is our level of service which makes us different, and we appreciate that our clients recognise that too. To have collected the award for five years running demonstrates our consistency in delivering quality services and products for our clients.
“The City of London Wealth Management Awards aim to recognise and promote high levels of service”
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Still one of Britain’s best companies to work for Nedbank Private Wealth and Nedgroup Trust together have been named as one of the best companies to work for in Britain in The Sunday Times 100 Best Companies 2019 listing. We have been a consistent presence on this listing, appearing for 14 out of the past 15 years. This year, we retained our position as the only private bank and trust company on the listing, which results from Britain’s largest ever survey into workplace engagement. This year, 402,903 employees across all industry sectors were surveyed.
MAKING YOUR LIFE EASIER Since the last issue of Opportunity, we have been adding to our award-winning team and you will see profiles and articles from some of our new faces in this edition. We all lead busy lives and tend to focus on what is right in front of us at the time - making financial decisions on a weekly or monthly basis without any strategy. As individuals, we are limited by our own experiences and it is human nature to repeat the same habits and the same thought processes, but this can have a significant impact on our financial position over time. Our wealth planning service uses cash-flow planning technology to help you step back and take a more strategic, long-term view of your situation. It adds focus to your major financial decisions, such as how much wealth you need to retire; how you would respond to extreme market shocks; when you could afford to buy the dream holiday home or to gift assets to a charitable trust to build a family legacy.
With Brexit uncertainty still impacting the UK property market, some of you are taking the opportunity to build your property portfolios or secure your dream family home, while there are still deals to be done, and we continue to provide support with our bespoke lending and mortgage services. We hope this issue will be of interest. With best wishes to you and your family,
Stuart Cummins, Chief Executive.
These conversations can prompt other potential scenarios to consider. For example, if your children grow up and enter a relationship with someone that you have reservations about - what are the options available for you to retain control as you pass on wealth to the next generation, or what strategies can you implement to ensure your children retain the same level of hunger and drive that made you successful? We can’t promise you all the answers, but we can help you to consider the right questions and provide a higher level of understanding and peace of mind regarding your finances, whatever happens in the future. In John Williams’ article on page 4, he discusses how having a wealth plan can make a material difference and help you to make informed financial decisions. We continue to invest in our technology programme and have released further functionality in our mobile app and online services, with more improvements to come in the near future. We are also developing our card services, and enhancing the speed of payments and transactions.
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A PLAN FOR LIFE John Williams, Head of Wealth Planning, London
Antoine de Saint-Exupery said “A goal without a plan is just a wish”, which is particularly relevant when we consider our financial goals and aspirations. John Williams, who recently joined us as head of wealth planning, highlights some areas where wealth planning can be particularly important. Inter-generational planning
The returning expatriate
Ensuring your loved ones can benefit from your wealth is a priority for most clients, whether it is helping your children get on the property ladder, or paying for your grandchildren’s education. These choices also raise questions about how you can pass on your wealth as early as possible and minimise the inheritance tax burden.
Expatriates returning to the UK need to plan ahead and ensure the move is seamless and tax efficient. Whatever your reasons for returning, the decision will have ramifications for your financial and personal affairs.
While there are a number of ways to achieve this, the most straightforward is an outright gift. However, you may be reluctant to gift while the recipients are still young, especially as the gift could be subject to future claims due to divorce or a failed business venture. In this situation, careful planning can allow you to retain some control as to how the gift is invested and how it should benefit your family. A good UK-focused example of this is to set up a trust. Family investment companies and family limited partnerships can also be used. The first step in the process should always be to review your will. It needs to reflect your current personal and family circumstances, as well as who you want to benefit and how. If property is owned in another country, it may be necessary to establish another will in that jurisdiction, not least as different allowances and exemptions and reliefs have to be considered. Certain countries – such as France and Italy – have forced heirship rules where succession laws define specific rights to specific individuals, which can be restrictive. Another option to consider is whether it makes sense to use life insurance to pay for any tax due.
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Your financial situation as an expatriate may no longer be appropriate when you become a UK tax resident, so a review of your financial affairs and the potential implications is vital, not least as the tax residency may kick in a lot sooner than you think. For example, if you spend time in the UK preparing for your permanent return, you could accidentally bring forward the start date of your UK tax residence status. Residency can be triggered after just 16 days in the UK, if you have been a non-UK resident for less than three years. Otherwise, you may become resident after 46 days of a tax year, or 30 days if you are staying in a UK property that is considered to be your main home.
“In addition, you should consider selling any assets that have risen in value while you were abroad with a view to ‘crystallising’ those gains before you become UK tax resident.“ Tax is, however, just one consideration. Other factors such as to how to fund your UK lifestyle, buy UK property, manage succession planning, children’s education and healthcare can all be equally important.
Retirement planning It is very easy to accumulate numerous pension pots during your career, but it can be challenging to keep track of what they are worth, how they are invested and how they are performing. Consolidating your plans into a self-invested personal pension (SIPP), for example, may be an answer. It also allows you to appoint an investment manager to manage your pension alongside your other investments. There have been a lot of changes to UK pension regulations in recent years, and you should pay careful attention to your annual allowance (the maximum contribution each year while still receiving tax relief) and your lifetime allowance (the total amount accumulated over your lifetime while still enjoying the full tax benefits). The lifetime allowance is currently ÂŁ1,055,000. Going over this allowance generally means a tax charge on the excess, which can become payable when you take a lump sum (55%) or income (25%) from your pension fund, or transfer it overseas, or reach age 75 with unused pension benefits. However, there may be an opportunity to go above the allowance if your pension was worth more than the lifetime allowance when it was introduced in April 2016.
“As well as providing for an income in retirement, pensions can be used to pass on wealth.� A review of your overall wealth as you approach retirement can help you determine the order by which income should be withdrawn from your various financial pots. The restrictions on pension contributions and lifetime savings also mean it is important to take a holistic approach to retirement planning. Traditional pensions should work alongside other investments including ISAs and venture capital trusts (VCTs), as well as property and other personal investment portfolios.
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MAKING TIME FOR ADVICE David McFadzean, Head of Investments Jersey
This year marks the 25th anniversary of the opening of Nedbank Private Wealth’s Jersey office. Your memories of 1994, if any, are likely to depend on your interests or predilections at the time or since.
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For politics watchers, Clinton and Major were, respectively, US president and UK prime minister and Nelson Mandela was elected as president of South Africa, ushering in 25 years’ of ANC rule. On the popular culture front we had the launch of TV shows Friends and The Vicar of Dibley, and Wet Wet Wet topped the UK charts for 15 consecutive weeks with ‘Love Is All Around’, from the soundtrack to the film Four Weddings and a Funeral. Even the band was reportedly sick of the song by the end of that summer! Unless you were an investor at the time, you are unlikely to remember anything special about 1994 from a financial markets perspective. Yet that year global bond market investors lost around $1.5 trillion. As a comparison, the US Federal Reserve’s entire balance sheet reached a peak of $4.5 trillion in 2015 as a result of its quantitative easing programme; so this is a very big number. Most people know about the stock market crashes of 1929, 1987, 2000 and 2008 yet the ‘great bond massacre’ of 1994 – as Fortune magazine, a publication aimed at ‘wealthy and influential people’, called it – passed most of us by. Time magazine’s (Fortune’s sister publication) front cover stories, famous for defining a year, include the death of Nixon, the OJ Simpson trial, the National Hockey League (NHL) lockout and Mandela’s election, but nothing on ‘the worst bond market loss in history’ – another Fortune quote from the time. This news would not be confined to the financial pages today. There has been a significant democratisation of financial market participation in the last 25 years. In part this is indirectly via the much more widespread provision of pensions and the switch to defined contribution schemes, where the investment choice is with the individual rather than their employer. Much of this has been prompted by government intervention, for example the UK government’s automatic enrolment initiative which was phased in from 2012. Many of us are now investors perhaps without being really aware of it. Direct investor participation has also spiralled, fuelled by the enormous growth of trading platforms for individual investors. This has largely been enabled by technological advances, in particular online and mobile access. Hargreaves Lansdown, a well-known UK platform, has doubled its client base in the last five years, recently reaching the milestone of one million customers. Over 82% of its deals are now placed online, compared to less than 20% just five years ago. Almost 20% of deals are now placed on mobile apps. This would have been unimaginable in 1994 when estimates suggest that only 300,000 – 600,000 people in the British Isles had any form of internet access
at home and mobile phones were the preserve of early adopters. Alongside this rise in participation, there has been an increase in regulation, and indeed a few new regulators, in an effort to protect consumers. Snappy acronyms such as UCITS, RDR and MiFID II hide vast swathes of directives designed to ensure transparency, liquidity and professional management. Although broadly successful in achieving these worthy aims, they have also been criticised for some unintended consequences, including increased costs and unnecessary complexity. Within wealth management, which provides banking, lending, structuring and investments, there have also been significant changes. Recent innovation has focused on providing a more efficient service with many firms placing emphasis on ‘robo-advisers’ where clients engage in many of their interactions without contacting a human. Although we do have a very user-friendly mobile app, at Nedbank Private Wealth we prefer to maintain a more personal touch by using new technologies to enhance the service and advice we are able to give our clients; perhaps bionic advisers would be a better description! The value of this type of advice cannot be downplayed. Clients in a diversified portfolio in 1994 would have seen their equity assets grow by around 5.5% that year (MSCI World Index in USD terms), at least partially offsetting their bond losses. More importantly, those persuaded by their wealth manager to hold their nerve would have seen their 10-year US Treasury bonds return a whopping 23.5% in 1995. It is obvious that much has changed within the financial markets over the last quarter century and the value of professional advice tailored to an individual’s requirements is even more important today than in 1994. Who knows what the next 25 years will bring? Big data, machine learning and artificial intelligence are already starting to make an impact. Whatever happens, our commitment to protect our clients, advise them with integrity and make their lives easier will remain.
(This article first appeared in the Jersey Evening Post on 20 June 2019) 7 | OPPORTUNITY ISSUE 12 - 2019
TAXING TIMES FOR UK PROPERTY Marcus Prevel, Director, Nedgroup Trust
The UK, and London in particular, remains a magnet for international investors. In terms of UHNWIs (those with net assets over $30 million), London has the largest population with 4,944 the most of any city in the world according to Knight Frank’s World Wealth Report 2019.
However, the UK government has introduced new rules that mean the tax cost of buying, owning and selling residential properties in the UK has now increased, particularly for non-residents. The UK tax system is notoriously complex and can prove a minefield to navigate - there are different rules for residential and commercial properties, and these can vary depending on where the owner is resident for tax purposes.
“For many years the UK was seen as an attractive place for foreign investors in property and it was relatively simple for non-residents to legally avoid tax.” This was usually achieved by holding the property through a company registered outside the UK, but the advantages of doing so diminished in April 2013 with the introduction of an annual tax on enveloped dwellings (ATED), which is charged on residential properties valued at more than £500,000 that are owned by certain companies. This tax applies to both UK and non-UK residents and is charged annually based on the value of the property. It was designed to discourage corporate ownership of UK residential properties that are occupied by non-qualifying individuals.
Before 6 April 2019 Prior to April this year, non-UK residents were only subject to UK capital gains tax (CGT) if they sold a UK residential property. There were two forms: 1.
Non-resident CGT (NRCGT) rules which applied to disposals by nonresident individuals, close companies, trusts and personal representatives.
2.
ATED CGT rules that applied to disposals by companies subject to the ATED charge.
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What has changed? Under the Finance Act 2019 which took effect from 6 April 2019: 1.
The NRCGT regime was extended beyond residential property and non-UK residents are now subject to UK tax on the disposal of all types of UK property, including land and commercial property (known as immovable property).
2.
The ATED-related CGT regime was abolished completely and companies making disposals of UK property are now subject to corporation tax instead.
3.
An indirect CGT charge was introduced on disposals of shares in ‘property rich’ companies, which derive at least 75% of their value from UK land.
The abolition of ATED-related CGT presents a tax benefit for companies disposing of UK residential property in the future, as ATED-related CGT gains were charged at the rate of 28%, while the current corporation tax rate is 19%, and will reduce to 17% with effect from 1 April 2020.
How much is payable? Non-residential properties and shares of property-rich companies affected are automatically rebased to their 6 April 2019 market value (unless an election is made to use the original acquisition cost), so only the increase in value since April 2019 will be subject to tax. This means companies will need to obtain a valuation of their relevant properties as at 5 April 2019. Gains realised on the disposal of a UK residential property remain subject to tax in respect of any increase in value since April 2015. The table below shows a breakdown of the current tax rates on UK property disposals (June 2019): Residential property
Commercial property
Shares
Individual
28% (18%)
20% (10%)
20% (10%)
Company
19%
19%
19%
Trustee
28%
20%
20%
The figures in brackets are for basic rate individual taxpayers.
UK rental income changes UK rental income received by a non-UK resident company is also changing. It is currently subject to income tax at the basic rate (20%). However, under new changes to be introduced in April 2020, non-resident property holding companies will fall into the corporation tax regime, which means UK rental profits will then be taxed at 17%.
What action do you need to take? These changes are intended to simplify the previous legislation and align the UK more closely with other countries. They also remove the remaining advantage that non-residents had over UK residents investing in UK residential property, although UK commercial property advantages do still exist. If you are a nonresident owner of UK property, either directly or through trusts and companies, these new rules will affect you and your tax position. Nedbank Private Wealth does not provide specialist tax advice, but it is important to take appropriate advice in relation to your individual tax circumstances. 9 | OPPORTUNITY ISSUE 12 - 2019
COMPANY NEWS This year so far has seen a number of significant appointments as we continue to strengthen the business and extend our expertise. New managing director for Nedgroup Trust
Developing our investment proposition
Dan Bisson joined us in January as managing director of Nedgroup Trust, our Channel Islands-based trust and corporate services business. Dan is responsible for leading the team to grow the international trust business across both Guernsey and Jersey.
We have also strengthened our team with the appointment of David McFadzean as head of investments.
Based in Guernsey, Dan has over 20 years’ experience in the global fiduciary and corporate sector. Most recently employed at Butterfield Trust, he previously spent nine years at RBC Wealth Management International where he held a number of senior strategic roles, including managing director of wealth preservation and family governance, and head of fiduciary management. Dan’s extensive client, strategic and leadership experience will be a great addition to the business.
“Dan’s extensive client, strategic and leadership experience will be a great addition to the business.”
Left to right: Dan Bisson, David McFadzean, Rebecca Cretney and John Williams
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Based in the Jersey office, David is responsible for driving the company’s investment proposition for private individuals, trustees and investment consultants. David has over 25 years’ experience in financial services, working for global bluechip companies in London and Jersey, and providing investment solutions to a wide variety of clients around the world.
He joined from RBC Wealth Management, where he held several senior investment roles during his 15 years with the company, most recently leading the investment business as managing director and head of discretionary investments in Jersey. In further news on the investment team, Rebecca Cretney has taken on a new role as investment counsellor. Previously employed as a private banker, she works with David to support the company’s investment proposition for the Isle of Man office. Rebecca has over 16 years’ experience and her extensive investment knowledge and expertise is an asset to the investment team. Working alongside the private banking team, Rebecca works with fund managers, trust and corporate services providers, financial advisers and legal firms to develop the company’s investment proposition. In addition, she retains her established role as an investment adviser to various trust and pension schemes. Discretionary portfolio management is a core area of our expertise. Strengthening the team with specialised resource to work closely with our private bankers, trustees and major corporate relationships is vital, and David and Rebecca’s private client experience and investment acumen adds considerable weight to the team.
Focus on wealth planning John Williams joined this summer as head of wealth planning for the international business. His initial focus will be on supporting our private client base, integrating the benefits of wealth planning alongside our broader wealth management and trust capabilities. John is a senior wealth planning professional with over 25 years’ advisory and management experience working for global organisations providing solutions to a wide variety of UK and international clients. He joins us from Credit Suisse UK where he was head of wealth planning for five years. He has also worked in similar senior roles at Barclays and UBS. Now, more than ever, we believe families need to understand the complex options open to them for their finances. At Nedbank Private Wealth, we already enjoy an established track record of managing investment portfolios on a discretionary basis and providing a highly personalised private banking service. John’s appointment means he will be working alongside these teams to bring the benefits of wealth planning to bear and ensure we manage our clients assets effectively across all our jurisdictions.
“Based out of London, John will work with high net worth families and their professional advisers to ensure that they have a clear financial plan in place.”
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