Asset Protection

My mother was in Holland when the Nazis invaded. She used to tell us chilling stories of how the German soldiers would come looking for young Dutch men such as my uncles to conscript into building their roads, and how her aunt who lived next door was starving and would beg food from my grandmother who was eager to preserve every precious morsel for her children.

My grandparents were lucky. My grandfather was the mayor of Rotterdam and ran a successful Dutch Gin business, (the first to make flavoured spirits). His family was better off than most; they could buy meat and eggs on the black market in exchange for gin.

Like so many wealthy entrepreneurs he squirrelled his excess wealth in numbered Swiss bank accounts – if he had not done so his hard earned monies would have been confiscated by the Nazis. It was widely believed that Switzerland would remain un-invaded and that numbered bank accounts would protect his identity; on both counts he was right.

Protection of assets from invading governments, criminals, spendthrift family members or wronged spouses has long been big business. Swiss private banking grew fat on its famous numbered bank accounts – which have now long gone, only to be replaced by trusts in offshore financial centres.

Trusts – the brain child of the UK to protect assets for the families of Crusaders was a brilliant legal arrangement. The Crusader would transfer his wealth into the name of his trusted adviser with clear instructions that the monies were to be used only for the benefit of the Crusader’s wife and children. Unsurprisingly this legal arrangement came to be called the ‘Trust’.

The brilliant element of the Trust is to split Charles from his property which he transfers to John (in John’s own name) as ‘Trustee,’ but not for John to spend on himself, but to spend only for the benefit of Lucy, Frank and Leslie, the wife and children of Charles. The obvious benefit of this legal arrangement is that if Charles were to die while crusading, his property would still be owned by John for the benefit of Charles’s family, who may not be able to manage their own financial affairs without some assistance. Furthermore, Charles’s family would have avoided all the difficulties any family can face if death cannot be proved through the lack of a body. This splitting of property ownership has, over the years proved remarkably useful, not only for succession, succession without a body, wealth preservation and management, but also for asset protection.

Most assets can be protected. An entrepreneur will ring fence new businesses through ‘limited liability’ companies, and from natural disasters by insurance, but risks from unscrupulous individuals or greedy counter parties, spendthrift family members or litigious adversaries are not so easy to protect without a trust. In these circumstances the wealth owner may be wise to put his wealth in trust for his family.

There does however need to be a balance. Most States in the US do not recognise ‘Self Settlor’ Trusts. This means that a creditor of the settlor can pursue settled assets if the Settlor is a Beneficiary. These are called Domestic Asset Protection Trusts (DAPTs), and of course there are exceptions. The first State to see the commercial advantages of setting up DAPTs was Alaska, which was subsequently followed by Delaware, Nevada, South Dakota, and Nevis.

Offshore financial centres such as the Cayman Islands however, take a different approach. If the Settlor made the transfer to the Trustee with the intention of defrauding creditors, then the creditor can have the transfer set aside. In the Cayman Islands the time limit for a Creditor to bring a claim is six years. The Bahamas has a similar law, but the time limit is only two years, which is also true in the Cook Islands.

The moment jurisdictions have different laws; settlors have a choice. If asset protection is important to a settlor it is first important to know why. In all the cases in which I am an advisor the main reason why the Settlor wants privacy is to protect his family and wealth from criminal activity or exploitation. This right to privacy would appear to be recognised by the draftsman of the Data Protection Act, but is conveniently ignored when it comes to the collection of taxes.

If you agree, disagree or have any comment, or if you would like to book an appointment with Caroline or any one of her team, please contact svetlana@garnhamfos.com or call 020 3740 7423.

Should I continue as a Protector?

Last week, I received a number of e mails informing me that as a Protector of specific trusts, I would be included in a Register of Persons of Significant Influence (PSI). In each case the Trustees had taken legal advice and perceived themselves as being a ‘Financial Institution’ under the Common Reporting Standard (CRS) and a Protector of any trust to whom powers were reserved to remove and appoint a new trustee, was a PSI and needed to be reported as such.

It feels as if, like Alice in Wonderland, I have had a nasty fall, and nothing is as it was before! In one particular case, I was appointed as a Protector fifteen years ago, but have not seen the family for at least twelve. I do not charge an annual fee – maybe I should, or perhaps it is better just to resign.

At best being a Protector is a mug’s game. Legally the office carries fiduciary responsibilities to act in the best interests of the beneficiaries, but it is arguable that these responsibilities include failing to do something when clearly something needs to be done.

But, if as a Protector I do not know what is going on, because no one tells me, and I have no legal rights to demand information, I can have no idea as to when a situation or transaction is in the best interests of the beneficiaries or not. Let’s say that the trustees decide to liquidate a company holding a residential property in London for which no permission is required by me, the Protector, and in doing so the settlor becomes liable for £1.8 million capital gains tax bill.

Let us also assume that the settlor cannot afford this tax bill and looks around for someone to sue. The trustees are an obvious candidate, but they have access to funds in other trust assets they hold for the client and have a strong indemnity. The Protector, me, also has a strong indemnity, but no funds under management out of which to pay legal fees for taking advice and no right to information. To make matters worse, as a Person of Significant Influence the Government can also pursue me, the Protector, for being complicit in non-declaration of the taxes due. Furthermore, as a resident in the UK, I as a Protector am much more likely to be pursued than offshore trustees. Is it hardly surprising that I would wish to resign!

Clearly with people like me wanting to resign who were appointed to protect them – what can families do to protect themselves from unscrupulous professionals?

My advice is that in today’s hostile climate, a trust structure should not be reliant on a Protector, to provide the beneficiaries with protection from disruptive professionals holding an office.

Instead of appointing a Protector, the family should consider appointing a Private Trustee Company in place of the professional trustee, of which the Protector can be appointed a Director. In this way the Protector has limited liability, access to funds and is fully up to date with what is going on as well as having access to information as and when required.

Where the Private Trustee Company should be situate would however be dependent on a number of factors, including the need for privacy, personal connections, time zones, tax and availability of good STEP qualified professionals. If the assets of the trust are substantial – and the way of gauging this is to estimate how long the assets are likely to stay in trust following the death of the settlor – consideration should be given to putting in place Family Governance processes.

Just as a significant trading company has checks and balances at every level, so it should be with an offshore trust. There should be a way to limit the power of any one individual, provide for accountability, set out a clear understanding of what is expected, make sure notices and rules of meetings are adhered to and information is properly made available with clear enforceable rules as to when an officer can be removed and replaced. Such good governance rules enable disputes to be resolved before they can begin to damage the family wealth.

If you would like to find out more or arrange a time to meet with Caroline, please contact our business development manager Svetlana to arrange a meeting or write to her on svetlana@garnhamfos.com. 

Not everything white is a sheep!

A few weeks ago, I took my seat in the airplane on a flight back from Monaco. Given that my previous flight had been cancelled, this one was completely full. I was idly wondering who would take the seat next to me when my good friend and business colleague, came up the isle looking for his seat next to mine. He is a CEO and founder of an international trustee company which looks after residents of North and South America.

Ironically, I had written to him only a few weeks back, asking him what the wealthy in S America thought and were doing about the automatic exchange of information due to be introduced in 2017. Having the opportunity to discuss with him what we solutions we could offer clients was a delight which I did not disguise.

As a trust professional with many years of experience he and his team recognise that clients need trust officers who fully know and understand their families, business interests and them. Who better to quiz on what is really in the minds of a wealthy family with CRS on the horizon than their trustee?

As I suspected from my conversation with my dear old friend, wealthy families in these countries are alarmed that their personal financial data held abroad, is due to be exchanged with the Government of the country of their residence in S America. Many of these families did not transfer their monies abroad to duck their obligations at home; the driver was fear; if they had not done so, it would have disappeared.

He directed me to Transparency International which he said gave facts and figures which support the concerns of many wealthy residents in S America.

My personal experience of this organisation had not been good, having been mauled by their Executive Director in an interview live on Radio 4 for my support for law abiding UHNW families. But putting my misgivings aside, I took the time over the following few weeks to look properly into Transparency International and what it was dedicated to fight - corruption.

Helpfully, its website defines corruption as ‘the abuse of entrusted power for private gain’. It goes on to say that it can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs.

‘Grand corruption consists of acts committed at a high level of government that distort policies or the central functioning of the state, enabling leaders to benefit at the expense of the public good. Petty corruption refers to everyday abuse of entrusted power by low-and mid-level public officials in their interactions with ordinary citizens, who often are trying to access basic goods or services in places like hospitals, schools, police departments and other agencies. Political corruption in the allocation of resources and financing by political decision makers, who use their position to sustain their power, status and wealth.’

Transparency International has also developed tools for fighting corruption. In 1995 it published a Corruption Perceptions Index CPI which has since been published annually. This index ranks countries and territories on how corrupt their public sector is perceived to be. It is a composite index – a combination of polls – drawing on corruption-related data collected by a variety of reputable institutions.

Although according to the CPI S America may not be the most corrupt continent, it certainly has its fair share of corruption. Venezuela is ranked 157 out of 168, Paraguay 119, Argentina 83 and Brazil 76.

As my friend said, the wealthy families living in Brazil with whom he works are extremely anxious that financial data automatically exchanged by one country with the Government of Brazil, may find its way into the hands of criminals which could jeopardize their safety and that of their families.

But not all wealthy families living in these counties are corrupt. What Transparency International is fighting has to be applauded, but I would like to make one small point to their Executive Director – whereas all sheep maybe white, not everything white is a sheep! By which I mean whereas all corrupt may be wealthy, not all wealthy are corrupt. With the automatic exchange of information in 2017, financial information about wealth held offshore which may not be there for any illegal, immoral or unethical reason, may find its way into the hands of criminals keen to use this information for bribery and corruption.

Justifying the hardship which CRS could cause by saying ‘they deserve what they get’ is prejudice. But which is supported by the press, and Governments across the world. Like all prejudice the misdeeds of the minority should not be allowed to damage the well-being of the many who have made their money through hard work and decent behaviour.

If you have views either way, or wish to book a meeting with Caroline or any one of her team, please reply to svetlana@garnhamfos.com or call 020 3740 7423.

GFOS' responses to the Further Consultation Paper of 19th August

        Introduction

 The UK is the world’s leading financial centre and is a destiny of  choice for many ultra-high net worth (UHNW) individuals

If the UK wishes to capitalise on its strengths and send a consistent and clear message to the world that it is open for business, it needs to understand where it is, where it wishes to go and how to get there, post Brexit.

Now that the world has shrunk through easier travel and the abolition of exchange controls, the UK is pioneering the drive worldwide on anti-avoidance of tax and transparency of information. The OECD initiative on the automatic exchange of information (Common Reporting Standard, ‘CRS’) to be introduced in 2017 should be an incentive for the UK to reunite tax residents with their wealth and trusts in the UK, rather than continue to advocate a system of tax for non doms which is opaque, promotes investment and business offshore and is not based on any specific debate or consideration.

The UK could take this Further Consultation as an opportunity to look afresh at its attitude to wealth creators and the Taxation of Non Doms in the light of what is best for Britain, post Brexit.

The beneficial tax treatment for those for whom the UK is not their ‘home country’ (non UK doms) was not planned as a benefit or a relief. It was not therefore properly debated or considered as to what was best for Britain. It came about by bringing all UK doms into charge to tax on their worldwide income and gains as it arises following the Great Wars. The former remittance basis was reserved only for non doms. Similarly, estate taxes (inheritance tax - IHT) followed the same demarcation. Non doms were only charged IHT on their UK situs assets, whereas UK doms were chargeable on their worldwide assets.

Changes to taxation must, in our opinion, not only be considerate to the UK dom taxpayer, but also be fair to the wealthy non dom taxpayer who must pay it. If not, less instead of more tax will be raised; the Laffer curve.

A good example of the Laffer curve in operation is seen in the increase in residential property taxation, the collapse of the upper residential market and the fall in tax collected. The boroughs of Westminster and Kensington and Chelsea in 2012, contributed more to HMRC through stamp duty land tax (SDLT) than Northern Ireland, Wales, Scotland and northern England put together. Now that SDLT has risen to 15% at the upper end of the market the tax take for SDLT has dropped by one third. This does not only affect the tax taken by HMRC, but also affects the profitability and tax paid by estate agents, interior designers, plumbers, electricians, removal companies, architects and many others. 

The tax collected has not fallen due to clever tax schemes or failing to declare what is due, it is simply because home owners are not prepared to pay these taxes at this rate on buying or selling homes. This hike in taxation has therefore made it difficult, if not impossible, to sell with the result that those who want to ‘get out’ are locked in.

It is suggested therefore that a root and branch strategy is needed which is politically correct, fair and attractive for non UK doms, but also in line with the Government’s other initiatives and strategy. It should encourage wealthy foreigners to reside in the UK, live in their homes and bring their monies and trusts into the UK with them. These individuals and their wealth will then be transparent, will promote the professional services in the UK rather than offshore financial centres such as the Channel Islands, Bahamas, Singapore and Switzerland and can easily be trackable without the co-operation of whistle blowers. The strategy should also encourage wealthy individuals to spend their monies in the UK for the benefit of the entire economy.

Responses

Questions 1-7                                          Fine

Question 8

Do stakeholders agree that these steps will effectively ensure compliance?

No, the steps suggested are unfair, harsh and in the long run will be counterproductive.

Advisers to UHNW individuals are already weighed down by the burden and expense of compliance as the unpaid whistle blowers to HMRC. They have accepted this burden without complaint, but to make them liable for the taxes of their clients in addition is harsh, unfair and counterproductive.

The profession does not object to the Government’s insistence that advisors ‘know their client’ and to report any suspicious transactions, but there are circumstances where liabilities could arise about which an adviser may not be aware, and therefore could not be expected to report. To make him or her then liable for this tax is unacceptably harsh.

To give an example: Mark is the UK resident director of an offshore company which owns a residential home in Knightsbridge for Abdullah who was given it by Asim, his father. Mark’s client is Abdullah, not Asim. Unknown to Mark, Asim treats the home as his with a full wardrobe of his clothes, personal belongings, paintings and his fishing and shooting clothes. Abdullah is rarely there, given his work commitments and relationship with his fiancée who lives much closer to his office than his home in Knightsbridge. Asim has no assets in the UK and so it is hardly surprising that Mark was unaware of his sudden and unexpected death and so does not report the IHT liability of Asim to HMRC. Several years later the gift with reservation of benefit comes to the attention of HMRC at a time when Asim is no longer resident in the UK. If the Knightsbridge home was worth £20 million at the time of the death of Asim it is unfair and harsh that Mark be made liable for £8million when he did not and could not have known of the death of Asim which gave rise to this liability.

Question 9

Are there any hard cases or unintended consequences that will arise as a result of there not being any tax relief for those who want to exit their enveloped structure

Yes.

To give an example. Jacques came to live in the UK in 1992 and has been living in the UK and paying taxes in this country for more than twenty years. In 2006, he set up two trusts in Jersey one for his optical instrument business and his investments and the other to buy his home in Knightsbridge through an offshore company. Provided the trustees remain non UK resident, the assets are non UK situs and he keeps his income and gains offshore, he has UK tax advantages, for income, capital gains and inheritance taxes.

Assuming the trust in 2006 bought his home in 2005 for £5 million, in 2008 was valued at £6.5 million, in 2012 was £8million and in 2017 will be valued at £12 million, he is faced with some harsh tax consequences under the proposals.

If he continues to own his home through a trust and company structure he will be liable to pay ATED next year at the higher rate band in excess of last year’s rate of £109,050. There are numerous situations where the ‘home owner’ in circumstances such as Jacques do not have the funds to pay this tax. In such circumstances and given the difficulty in selling the property HMRC is known to have agreed to the payment of 2016 ATED by instalments.

The reason why there are so few buyers is because buyers looking to buy a home such as Jacques’s, will need to pay up to £1,800,000 SDLT for a £12million home, which for most buyers is perceived to be too much; which is why the upper residential market has collapsed.

 If, Jacques decides to de-envelope under the proposals set out in the Further Consultation Paper, he faces an immediate charge to capital gains tax; ATED related CGT of £1,120,000 and s86 CGTA CGT of £420,000. Most UK resident non doms would not be able to pay this money in taxes, without selling the property – and as outlined above there are currently very few buyers with SDLT at such a high rate.

A simple solution, which would be politically correct and fair would be to provide owners of homes through enveloped structures with the benefits available to other home owners as follows

1      Homes which are lived in by UK residents and are, have been, or are to be occupied by the home owner as his or her main and only residence whether directly or indirectly should be entitled to the main and only residence exemption at the point of sale (according the years occupied as such).

2      Homes owned by non UK residents or which are not to be treated as the main and only residence of the occupier, should be chargeable to capital gains tax as from the 2012 valuation (ATED related CGT) as well as CGT under s 86/87 TCGA from the 2008 valuation at such point as the home is sold, but not at the point of the de-envelope. Home owners will then be in possession of the cash to pay the tax.

3      UK residents should be able to sell their property at the old 4% rate of SDLT so that these homes can be sold if need be, the lower rate would not be available to non UK residents and could remain at 12-15% to encourage non UK residents to take up UK residence.

4      Homes owned directly by UK or non UK residents and which are held by the occupier at death should benefit from a capital gains tax uplift.

Of course, on the death of Jacques his estate would have to pay IHT of £4,800,000.

The Government has been benefitting from unexpectedly high levels of ATED which it will lose as and when it provides relief for those who wish to be transparent and own their homes in their own names. By lowering the stamp duty land tax to 4% for all property owners who are UK residents, the market will be revitalised which will bring the SDLT collection back to its 2012 levels thereby providing work for estate agents, architects, plumbers, electricians and all other services which thrive on a buoyant high end residential property market. Also by making the sale and purchase of UK residential property more attractive the Government will recoup the lost ATED tax from the Capital Gains Tax on sale.

Business Investment Relief

Introduction

In addition to the harsh and unfair consequences of the suggested proposals in the Further Consultation Paper the Government is sending out a confused message as to whether it

·      is open for business post Brexit

·    /  is genuine in its promotion of the transfer of wealth to the country of the taxpayer’s residence,

·      is genuine in its drive towards transparency, which must be the ultimate goal of CRS,

·      is genuine in its support of its financial industry which will be incentivised to advice clients to transfer wealth to the UK to avoid the vagaries of CRS, and

·      can be trusted by the non dom UHNW community

This could easily and simply be remedied by extending the reliefs for UK resident non doms to trusts with UK resident trustees and UK situs assets as set out below.

It has long been a mystery to us why the Government encourages non doms to become resident in the UK, but to invest in non UK situs assets in offshore trusts. The UK is the founder of the trust, and yet the trust business in the UK has dwindled to little more than administering domestic Will Trusts for widows, orphans and the disabled while offshore financial centres such as Channel Islands, British Virgin Islands and Switzerland flourish.

This non dom tax benefits for offshore trusts and assets did not come about, as a direct consequence of considered debate, but as a side product of a decision to raise taxes taken many decades ago. There should therefore be no reason why this demarcation should be allowed to continue, especially since it favours the economy of other jurisdictions over our own.

It is suggested that the Government should now, post Brexit, make some relatively minor changes to the legislation which could greatly benefit the UK economy, would be simple to introduce, would save on investigations and the administration of the assets of non doms being reported under CRS and send the right signal to wealthy foreigners that the UK is open to business.

Non doms should be encouraged to be resident in the UK, and to bring their wealth and trusts to the UK by extending the tax benefits for offshore trusts and their non UK situs assets to trusts with UK resident trustees and UK situs assets. This would neatly boost the private client industry in the UK and with it London as the world’s financial centre. It would send a strong message that, post Brexit, UK plc is open for business and can be trusted as a pioneer on transparency and anti-tax avoidance (without having to rely on whistle blowers). At the same time, it would send the message to the world’s wealthiest that provided they live and bring their wealth and businesses into the UK they can live in the UK in peace.

It would also tie in very nicely with the introduction of CRS in 2017; the automatic exchange of financial information by offshore account holders to the country of the account holder’s residence. Wealthy non doms fearing that their financial data could get into the wrong hands would be attracted to live in the UK. There would be no threat from CRS if they both lived in the UK and had their wealth and business in the UK.  

CRS is seen by many as a danger to their personal safety particularly for residents of countries in some emerging markets where Governments cannot be trusted to keep private financial information out of the hands who wish to use it for criminal purposes. Already funds are leaving financial centres such as Switzerland for US bank accounts and US States such as Nevada, S Dakota and Alaska are seeing a significant increase in demand for trust licenses.

The US is an attractive destination, because it has not signed the CRS. It relies on its own FATCA provisions under which other countries provide the US with financial information about their citizens, but the US does not reciprocate. It does not not collect and exchange financial information on behalf of non US resident individuals with financial accounts in the US with the Governments in which these people reside.

Under the proposed changes the UK would become a destination of choice for wealthy individuals across the world who do not wish to invest in the US, and would prefer to invest and reside in the UK where it is safe and if fully managed and invested through trusts in the UK would avoid the potentially damaging effects of CRS.

With these simple changes, the UK would also be seen to be sending out a consistent message which is fair to all. The UK is not blind to the need of privacy of its residents. It pioneered and introduced the Data Protection Act 1998. Under this Act which has since been adopted by numerous other OECD countries, an individual is given rights to information, appeal and compensation. Data is protected from being transferred outside the EU and must not be held for an unnecessary length of time. The Data Protection Act however does not extend to organisations responsible for the assessment and collection of tax. This means that if the data exchanged with the UK is incorrect, the taxpayer could be suspected of evading tax and under the Tax Payers Charter will have no right to review the information, no right of appeal and no right of compensation.

This is clearly harsh especially if the taxpayer is encouraged to keep his assets offshore for legitimate tax reasons, which can be of no real benefit to Britain. However, if taxpayers have the option to bring their assets and trusts onshore, make all their wealth transparent and trackable as UK residents, then CRS will not apply. These simple changes would send the clear, consistent message that the UK is genuine in its policy to promote transparency, is open for business for those who make the UK their home in the UK, supports the UK’s financial services industry, is fair to all who live in the UK and pay all their taxes. Through some small changes the UK could be seen as the ideal place for the wealthy to live and a place for them to bring their wealth and businesses. It would also become the destination of choice for those who are concerned about the safety of their financial information in the country of their residence which would attract many wealthy families to relocate from emerging markets to the UK with their families.

Furthermore, whereas it is suggested that trusts of deemed domiciled settlors and beneficiaries should lose the tax benefit if additions are made in excess of a de minimise amount, trusts should not lose their protection if benefits are paid out. Trustees should be encouraged to pay out to UK resident beneficiaries and settlors, for these monies to be taxed and to encourage monies to be released and spent in the UK for the benefit of the UK economy.

Business Investment Relief

Our suggestion is that Business Investment Relief should be withdrawn in favour of the above amendments. It is too complicated, too narrow, and does not send out a strong enough message that UK, post Brexit, is open for business. It should encourage wealthy foreigners to become resident in the UK and to bring their monies with them. The UK is safe, it has good laws, is the home of trust law, and has well trained and qualified professionals.

The above changes would be welcome to foreign wealth owners who are rightly concerned about the privacy of their financial information, not because they wish to evade taxation, but because they do not want their private information being exchanged across the globe. If the above changes are made not only will all the information about their wealth be transparent but will also be safe meaning that wealthy foreigners will naturally look at the UK as the place where they want to live and bring their wealth with them.

One rule for the rich and another...

In 1998 the UK pioneered the protection of privacy. Personal data stored on computers, it said, needed to be protected from falling into the wrong hands and individuals were given rights to enforce the law. Now most OECD countries have similar protections for those resident in their country.

 The type of data which is considered personal is pay records, bank statements, and medical history. There is even greater protection for religious, ethnic and sexual data. An organisation which holds such information must not allow it to be sent outside the EU unless adequate care is taken as to its protection and it is not to be held for longer than is necessary.

There are however, some situations where an organisation is permitted to withhold information – organisations which are responsible for the assessment or collection of tax are outside the scope of Data Protection!

The OECD initiative for the automatic exchange of information under the Common Standard of Reporting, however takes a diametrically opposed view when it comes to assessing and collecting tax. This initiative applies to all financial institutions which have financial accounts belonging to an individual who is resident in another country.

 Idris is a non UK domiciled person resident in the UK who has a bank account in Switzerland. Under the CRS rules the bank will need to report to the Swiss authorities that Idris has an account in Switzerland, the amount in the bank account and any transactions made during the year. The Swiss authorities will then automatically exchange this information with the UK authorities which can then match it up with what they know about Idris and undertake such investigations as it considers necessary.

 Given that the Data Protection Act does not apply to the collection or assessment of tax, what protection does Idris have if the information exchanged by the Swiss authorities with the UK authorities is incorrect? What can he do about it? I he suffers a loss as a result what right of compensation does he have?

Nothing!

Let’s assume that the information stored by the bank in Switzerland was collected for money laundering purposes, not for the purpose of exchange of information. This is not only permitted under the CRS but is encouraged.  However, the purpose of collecting information for anti-money laundering purposes is very different from the information which may be required by the taxing authorities. Let’s assume that at Idris’s bank, the source of funds is stated as being income from a mining operation in Africa. However, in fact it is from the sale of a mining business in Africa, which was sold before Idris became resident in the UK.

 Idris has therefore been treating this money as clean capital and has not declared it as income when he has transferred payments to his bank account in London.

 On receipt of information about the bank account of Idris from the Swiss authorities, HMRC matches it against what has been declared by Idris. It notes the discrepancy between and payments the Swiss bank says have been made and the taxable receipts declared by Idris so it starts an investigation. This investigation is likely to take years to resolve involving Idris in expensive professional fees; accountants and legal opinions, not to mention his own time, effort and effect on his health.

Let’s assume, after a full investigation costing Idris over £400,000 HMRC is satisfied that Idris is not liable to tax. Under the Taxpayer’s Charter however, he has no right of appeal and no right of compensation.

 By comparison with other countries, however, the UK is considered safe. However, there are residents of other countries where mistake and error is the least of their concerns. They are more worried about rogue employees within the tax offices which have access to this information, hackers breaking into insecure computers and abuse by Government officials.

 For residents of these countries what can they do? Some are already making plans to move their residence to a country with safer tax authorities, others are moving their accounts to more secure financial institutions and some are moving their trusts to different jurisdictions. Already professionals around the world are researching where people, their monies and their trusts could go, to protect their safety and their assets.

GFOS is pioneering this research and is in daily contact with representatives from across the globe exploring what can be done by those concerned about protecting their privacy.

If you would like to book an appointment with Caroline or one of her team on what options you may have to protect your privacy, which does not impact on your investment flexibility, increase your tax exposure or impact on your security, call Svetlana on 020 3740 7423 or email svetlana@garnhamfos.com.