James Ward, Head of Private Client, and Jane Keir, Partner in the Family & Divorce team, at law firm Kingsley Napley set out recent changes to the legal landscape that all High Net Worth Individuals need to be aware of.
Much has changed since we emerged from the COVID pandemic. With rising house prices and a resurgent stock market last year, the number of UK based HNWIs continued to increase. Yet we have entered choppier waters in 2022 with the effects of the war in Ukraine on the economy, inflation and equities-based investments, the introduction of targeted sanctions against certain HNWIs and meltdowns in the crypto space.
More than ever, therefore, we expect UK based HNWIs are considering their asset protection plans as well as the usual estate planning, creating and updating wills, setting up of trusts, establishing Powers of Attorney, reviewing life insurance policies and creating pre- and post-nuptial agreements.
So, what are the recent legal changes HNWIs need to be aware of and what hasn’t changed?
Asset protection
HNW clients are typically focused on ensuring their assets will pass efficiently down their family line. Whether in their eighties or thirties; “old” wealth or new generation entrepreneurs; marrying for the first time or remarried with a complicated new family set-up, asset protection is a common theme.
Popular solutions include mitigating inheritance tax through gifts, trusts and investing in business assets that qualify for Business Relief. If the Government keeps to past promises, IHT bands will remain frozen until 2026.
In addition, we see growing interest in the creation of pre- or post-nuptial agreements to protect family or self-generated wealth from the consequences of divorce. It remains the case that these are not automatically enforceable but they are gaining ground in practice and being upheld in the Courts if effectively drafted.
HNW clients are typically focused on ensuring their assets will pass efficiently down their family line. Whether in their eighties or thirties; “old” wealth or new generation entrepreneurs; marrying for the first time or remarried with a complicated new family set-up, asset protection is a common theme
Clients are also asking for succession planning for family businesses and prudent steps to ensure these are shielded, as far as possible, from tax exposure, marriage break-down and sheer misadventure.
Another tool with increasingly appeal is the Lasting Power of Attorney mechanism where there is a risk of loss of capacity on the part of the asset-holder. There are two types – one for health and welfare and the other for financial affairs. The Government recently proposed reforms which should make the set-up process simpler, quicker and easier and to encourage use of its new digital service.
Wills and probate
When it comes to making a will, digitisation now also features. The rule first introduced during the pandemic which permitted witnessing of wills over video call has been extended to 2024, with many expecting this will become a permanent measure in due course.
The rule first introduced during the pandemic which permitted witnessing of wills over video call has been extended to 2024, with many expecting this will become a permanent measure in due course
The recent noteworthy change in the probate arena is the increase in application fees to £273 for estates over £5,000, although this will be less controversial for HNWs than others. Estates below the IHT threshold of £225,000 are exempt from form IHT205, although again that will likely have little impact for HNWIs.
Sanctions and privacy
Of possibly greater interest to HNWIs will be aspects of the recent Economic Crime Bill passed at short notice in the wake of Russia’s invasion of Ukraine. This introduces a new obligation on overseas entities to register their ultimate owners and controllers when purchasing property in the UK. As such, it will make it harder for property to be held anonymously through corporate structures after 1st September this year. Trustees and trusts are subject to further rules. Those who fail to adhere to the new rules risk criminal sanction.
The same Bill also strengthened the tools known as Unexplained Wealth Orders, whereby law enforcement agencies can compel a respondent to prove a particular asset was obtained through legitimate means or face civil recovery or even criminal proceedings. The range of individuals who are now required to respond to an UWO has been expanded, as part of the Government’s much vaunted crackdown on dirty money. Financial advisers and other professional advisers to HNWIs too will face heavier penalties for any breach of their money laundering obligations.
The same Bill also strengthened the tools known as Unexplained Wealth Orders, whereby law enforcement agencies can compel a respondent to prove a particular asset was obtained through legitimate means or face civil recovery or even criminal proceedings
Of course, back in March the Government published a targeted sanctions list freezing the assets of several oligarchs tied to London. However, HNWIs generally will find AML checks are a hot topic when it comes to any transaction or investment, regardless of their links or not to Russia.
Top Tip
Lee Goggin
Co-Founder
Cryptocurrencies
The world of cryptocurrencies is creating a new breed of HNW individual who needs advice on asset purchases, potentially criminal or fraudulent activity, asset loss or often how to crystallise value in real money terms from their investments.
Although regulation in the cryptocurrency space is currently limited, the FCA is reviewing this area and has certain operators in its sights. Crypto investors should therefore proceed with care in particular relating to money-laundering legislation
Although regulation in the cryptocurrency space is currently limited, the FCA is reviewing this area and has certain operators in its sights. Crypto investors should therefore proceed with care in particular relating to money-laundering legislation. Digital assets are not simply the preserve of the HNW community. However, we predict those most likely to want to use the courts to press their rights in this area, will be those with the wealth to do so.
ESG
HNWs considering investing in ESG friendly funds should be alive to the risk of “greenwashing” which is starting to feature on regulators’ radars around the world. This includes situations where the financial services sector misrepresents the ESG impacts of certain investments or omits relevant ESG information from their own corporate communications, thereby misleading investors. Whilst any enforcement action may not impact a HNWI directly, this is a developing area of the law which may impact HNWIs’ financial returns or investments.
Family law
In the family law arena, a recent noteworthy change was the much-heralded introduction of “No Fault Divorce” via the Divorce, Dissolution and Separation Act which took effect in April 2022. It means couples looking to bring their marriage to an end in England and Wales no longer need to use a fault-based petition to do so and is aimed at reducing conflict during divorce. However, it is worth highlighting that the financial aspects of the divorce process and therefore the potential for disputes over money remain unchanged.
In the family law arena, a recent noteworthy change was the much-heralded introduction of “No Fault Divorce” via the Divorce, Dissolution and Separation Act which took effect in April 2022
An overwhelming theme in family law circles at the moment is the huge backlog and delays in court proceedings. As such many HNWIs are opting for private proceedings or ADR mechanisms which can be swifter, more efficient, more controllable and importantly involve resolving financial and parenting issues behind closed doors.
Another salient change is that post-Brexit jurisdiction races are now a thing of the past when it comes to filing divorce proceedings if the parties have assets, residency rights or were originally married overseas. This was previously avoided under Brussels 11a legislation. Now where there is a choice of jurisdiction, the arguments will centre upon which country is the more convenient jurisdiction which is likely to be a lengthier process but one which some would say is fairer as it means that the previous rush to the court doors (or court portal) is no longer necessarily determinative.
Immigration
Finally, we have seen significant immigration rule changes in the last year which affect many HNWIs and their families who travel to or want to reside in this country.
Finally, we have seen significant immigration rule changes in the last year which affect many HNWIs and their families who travel to or want to reside in this country
The Tier 1 investor visa scheme was scrapped at short notice in March 2022 and we await the details of the new scheme to replace it. An appealing feature of the Tier 1 route was that individuals could invest money into the UK and did not have to work or have UK earnings. Following its removal, the bottom line is that for those who wish to potentially acquire immigration status in the UK without working, there really is currently no longer an immigration category that provides the same level of flexibility. Schemes prioritise those who wish to work and will be economically active such as the Skilled Worker and Global Business Mobility Visa routes. Other options available include the Global Talent Visa, where exceptional talent in academia or research, arts and culture or digital technology can be demonstrated. However new categories are expected later this year.
James Ward (Head of Private Client) on [email protected]
or Jane Keir (Partner in the Family & Divorce team) on [email protected]
