In this article, the promotional agency of Guernsey discusses prospects for the UK’s high net worth community in light of geopolitical challenges.

As 2016 comes to a close, Guernsey is one of a number of international financial centres making its voice heard, reflecting on the issues affecting the UK’s wealthy and exploring opportunities ahead. The author of this article is Richard Le Tocq, head of Locate Guernsey.

This publication is pleased to share these insights; it does not necessarily endorse all the views of guest contributors and invites readers to respond. They can contact us at tom.burroughes@wealthbriefing.com.

The new wind blowing through UK politics has left high net worth individuals quite rightly feeling as though they have been neglected by political leaders. With the Autumn Statement having come and gone, many in the HNWI community believe the Chancellor failed to take the opportunity to address their concerns. While it was totally understandable that Philip Hammond concentrated his Statement on the government’s economic plans in the wake of Brexit, his near silence on the future of non-doms and other HNWIs was deafening. Only recently has the draft Finance Bill 2017 been published, although this merely provided some very minor guidance as to what non-doms can expect over the coming years. As a result of this uncertainty, coupled with the ongoing political and economic challenges the UK is confronted with, an increasing number of HNWIs are now considering relocating to more accommodating jurisdictions to protect their businesses and personal assets.

Autumn Statement and Finance Bill 2017

From April 2017, in what is a radical overhaul, the permanent non-dom status will be abolished; with those resident in the UK for 15 of the last 20 years having to pay full domestic taxes. In light of this, non-doms and other HNWIs were looking to the Autumn Statement to provide some reassurance regarding their future in the UK. While the Chancellor mentioned that non-doms would benefit from changes to business investment relief, this will be of little consolation given the aforementioned reforms. Indeed, HNWIs and their advisors have also noted that the benefits of this are heavily mitigated when the terms and conditions are taken into consideration. 

Although perhaps not their intention, these government actions have alienated many within the HNWI community and failed to recognise the significant role non-doms and other HNWIs have played in developing the UK economy. This influence has been most notable in terms of providing a vital source of financial capital outside of the banking sector. With government policy making the UK an increasingly unaccommodating jurisdiction, and the draft Finance Bill 2017 failing to cut the mustard, the government should carefully consider its future policy in order to maintain the goodwill of this highly-valuable and internationally-minded demographic. 

Political and economic instability

With steady and sophisticated economies, stable democracies and sound public finances, major jurisdictions in the West used to provide ideal locations for HNWIs. In much of the western world however, this is no longer the case. The recent US presidential election has raised eyebrows over the future direction of the world’s largest economy. Meanwhile, Brexit has thrown the UK into uncertainty, with everyone asking – but unable to say – what sort of economic relationship the UK will have with the rest of the globe going forward. Despite efforts from Theresa May and her European counterparts, no one has been able to provide reassurance and convincingly explain how they will make Brexit work. 

Although the prime minister is increasingly coming under pressure from some pro-remain backbenchers demanding the publication of a pre-legislative white paper before it triggers article 50, this has done little to assuage the current situation. Insecurity over the UK, and indeed the EU’s, future has hampered what is already a sluggish European economy. The unsustainably high public debt and deficit levels throughout much of the continent are also a cause for concern; especially with the Euro crisis still fresh in everyone’s mind.

In addition to a rather bleak economic outlook, the political climate has also witnessed severe turbulence. There has been an almost uniform rise in anti-establishment, populist parties across the western world; with some alarmingly close to power in their respective countries. In this new era of weak economies and unpredictable politics, it has become increasingly difficult for businesses and HNWIs to plan their financial strategies. This has most notably been the case for the UK post-Brexit. The Autumn Statement, in revealing the rather disappointing economic forecasts and increased government borrowing, highlighted how tough it is to make accurate plans in such circumstances. HNWIs and businesses will certainly be wary of tax rises and further alterations to fiscal policy in this climate. 

Alternatives – less is more

The uneasy situation means that both HNWIs and businesses are reviewing their options and contemplating the benefits provided by some smaller jurisdictions; in a bid to shelter themselves from the volatility experienced by larger economies.

Within this context, it is perhaps no surprise therefore that members of the UK HNWI community are increasingly considering the option of relocating to business-friendly jurisdictions which truly value the significant contribution they make. When considering this option, the priorities are invariably a well-managed economy, low public debt levels, balanced government budgets and a history of stable government.
It is these considerations that set smaller jurisdictions apart from their far larger neighbours. Despite their small footprint, they are incredibly high value. A prime example of this is Guernsey; although its accommodating tax landscape and Open Market residential property system are often lauded, the stability maintained by the island’s judiciary and democratic political system, along with its advantageous time zone, currency and lifestyle, make it an attractive destination. Coupled with its proximity and connectivity with the UK, enabling individuals to easily maintain their UK business interests, it is no wonder that many have already made the move. 

Guernsey is one of many examples demonstrating why the HNWI community need not be troubled by jurisdictional instability. Smaller jurisdictions can provide refuge from many of the crises currently facing the western world, whilst maintaining valuable commercial links with these developed economies. Relocating to these smaller jurisdictions enables HNWIs to maintain their commercial interests whilst enjoying the stability much-desired across most of the western world. In light of the changes about to strike UK non-doms, it is worth keeping such options in mind.