Our expert advisers provide independent corporate finance advice to shareholders and companies at every stage of the corporate lifecycle – from acquisitions and capital raising, through to disposals and liquidity events.
Our highly experienced team provides independent corporate finance advice to shareholders and companies at every stage of the corporate lifecycle, from acquisitions and capital-raising through to disposals and liquidity events.
The team also advises clients on their direct investments and will introduce, structure, and monitor direct investments into private companies on their behalf.
We provide corporate finance advice to families and individuals, businesses and entrepreneurs. A key measure of our success is the value we help create for clients and their businesses, rather than the size or number of transactions on which we advise.
This approach has earned us a reputation for offering bespoke, considered and dispassionate advice. Whether you are looking for help with a specific transaction or a business relationship over the longer term.
Many of our clients appreciate our ability to commit to a long-term relationship to build shareholder value through partnership. Others recognise our meticulous approach in the execution of individual transactions.
Similarly, some clients simply require expert guidance, whilst others require their advisers to take more of a principal role in the process.
Our experience of advising families and entrepreneurs on their business and private investment interests has led to the development of our direct investment advisory practice.
We offer a customised origination and advisory service for those of our clients that seek a more focused exposure for their investments, or have more specific sector or geographic requirements, or a longer term investment horizon.
Many of our clients have extensive commercial and business interests and often view their private investing activity as a natural extension of this.
Our wide-ranging experience of working with and advising both corporates and investors leaves us well-placed to advise our clients on their private investing activities.
Unfortunately it seems to take major corporate failures to highlight the virtues and merits of a diversified portfolio. Naturally, investment managers who potentially held such a failure in client portfolios, also choose to trumpet the benefits of a diversified portfolio at such times.
The subject of diversification also raises the active versus passive debate. One of the growing arguments against passive (or index tracking) investing is the inherent concentration risk in particular companies. In the case of the JSE All Share Index, it is Naspers at nearly 20% of the index (with Naspers, Richemont and BHP Billiton together constituting 34% of the index). Certain longer-term investors may be comfortable with such a concentrated exposure, but index investors need to be aware that although they may no longer be at risk of underperforming a particular index, they may be significantly increasing concentration risk.
When investing in a listed company, investors are implicitly placing both their capital and their trust in the company and most importantly, in the company’s management team. Management are ultimately the stewards of shareholder capital and have a critical role to play in determining either the success or lack thereof of a particular investment.
In this regard, shareholder and management interests should be aligned in achieving long-term success. In a short-term oriented investment environment fixated on short-term peer rankings, industry awards and the pressures of chasing fickle inflows, achieving such alignment is increasingly difficult.
One important flag in the Steinhoff saga was of a culture of risk. Key management and executives entered into significant derivative positions and/or leverage to benefit from an increase in the company’s short-term share price movement. Although the argument can be made that management had material ‘skin in the game’, we view this as a misalignment of interest. Management stood to benefit from an increase in the short-term share price, despite potentially exposing shareholders to excessive risk or value destructive deals over the longer-term.
It takes time to understand a listed company’s culture. As outsiders, investors are reliant on management interaction, company disclosures or press reports and often an investor’s opinion on a particular company’s culture is based on accepting the status quo.
Paying close attention to a management team’s response to/or treatment of a poor set of results, a particular deal that may not have gone as planned or potentially unethical internal behaviour can often give good insight into the company culture. One notable example was Steinhoff management and executive team’s trading in Steinhoff shares leading up to the announcement of the acquisition of Pepkor from Brait in 2014. When later questioned on why the company was not under ‘cautionary’, Steinhoff’s response was that the ‘advice received was that no cautionary announcement was necessary’. To remain beyond reproach, and specifically to avoid after the fact questioning and insinuations, we would prefer management and companies to always take the most conservative option possible in such instances.
The ideal for the long-term investor is to find a company with a shareholder (both large and small) centric culture who understand and respect that they are ultimately custodians of all shareholders’ hard earned capital.
An even more recent example is the case of a JSE-listed retailer’s write-down of a recent overseas acquisition. Whilst the write-down was expected, the company recently altered their remuneration policy to incorporate ‘return of capital employment’ as a key metric. The write-down has the effect of boosting return on capital employed even if the company profits remain flat. Although the introduction of this metric may well be warranted on a longer-term view, the timing of the introduction in conjunction with the write-down is unfortunate. We have consequently placed our investment recommendation on the company under review.
In the same way company management are custodians of shareholder capital, investment managers fulfil the same role for clients’ capital. Just as company management are held accountable in cases of corporate failure or poor allocation of capital, investment managers should also be held accountable for poor decisions. All investment managers make mistakes. When mistakes are made, Stonehage Fleming Equity Management spend time examining what investment process refinements could be made or what may have been missed. Accepting that a particular investment decision was a mistake is, in our view, the most difficult acknowledgement for the long-term focused investment manager (even more difficult than a decision to allocate investor capital to a particular company). Analysing and assessing the merits of a new investment is a methodical and process-driven decision, accepting a mistake and taking the appropriate action requires accepting short comings in one’s research or process.
We do not agree that a failed company’s management team or lack/quality of disclosure should be blamed when investment decisions do not work out. The responsibility of the long-term investor is to understand the company where they are allocating client’s capital. As investors, we are quick to judge a management team for a poor deal and would not tolerate an excuse of ‘lack of trustworthy information’ and should therefore be held to the same set of standards as company management teams.
We believe it is essential to differentiate between organic growth and cash flows as opposed to ‘engineered’ profit growth. Companies are able to grow short-term profits through one, or multiple, acquisitions which may or may not make strategic sense or be in the best interest of the long-term shareholder. The low interest rate environment experienced over the recent past has been particularly friendly towards acquisitive companies. When companies embark on corporate activity, our preference is for management to have a track record of successful activity and for the acquisition to fall within the acquiring company’s ‘core competency’ (whether this competency is operational, technical or even regional related).
In Steinhoff’s case, the company embarked on a series of global acquisitions over the past five years. The acquisitions, in conjunction with changes in segmental reporting and a change to the financial year end in 2016, made consistent analysis of underlying ‘organic’ growth near impossible. Further to this, it now appears very likely that cash flows and even profit numbers were inflated over the past few years.
The growing trend for wealthy families to discuss and agree the ‘purpose’ of their wealth has been confirmed in numerous surveys in many countries, including the findings of Stonehage Fleming’s own report on family succession, entitled ‘The Four Pillars of Capital’.
This paper explores the practical benefits such an exercise may bring to a family, in particular to those who are beginning to plan the transition to the next generation.
All wealthy individuals are eventually faced with the decision as to how to leave their wealth, to whom and in what form. They also have to consider whether to leave it unconditionally or to leave guidance on how it should be used and managed. It is difficult to leave guidance without addressing the question ‘what is it for?’
Families have widely differing “purposes” for their wealth. At one extreme, there are some entrepreneurs who have left nearly all their money to charity, and at the other extreme, there is a family trying to create a 200 year trust with guidelines for distributions across eight generations.
Most of those who create large fortunes do so by building substantial businesses. As the business grows, the assets and revenues often exceed their needs, but the motivation to continue growing rarely abates.
Entrepreneurs are driven and ambitious and frequently seem to operate in a bubble of “eternal youth”. Only when they begin to consider succession do they think about the impact of wealth on their heirs.
The issues they need to address include the following:
The answers to these and many other questions are strongly interrelated and difficult to resolve in isolation. Conflicting objectives may need to be prioritised and reconciled around a central philosophy and purpose.
It can be immensely helpful to the next generation if that purpose and philosophy are developed and communicated well before the founder passes on. If not, the decisions made might come as a shock, causing resentment and perhaps dispute in the future with many negative consequences, including wealth destruction.
A family will probably include a number of individuals with differing abilities, personalities, interests and aspirations which are not always easily reconciled.
However, they may also have much in common and most people grow up with values, hopes and expectations which have been influenced by their family and their surroundings. Nearly all have a need to be treated fairly, if not equally, and to understand the difference.
Yet gross inequality and unfairness can be accepted, if they are ingrained in the family culture. For example, the English tradition of primogeniture involves large estates passing from eldest son to eldest son, whilst other children may receive relatively modest inheritances.
Underlying this culture is the tacit understanding that the central purpose of the wealth is to preserve the estate in family hands. In such cases, this fundamental objective takes priority over most other considerations, including the needs of individuals.
Some business-owning families may take a similar view in that they have a strong preference to keep the business in family ownership, which may have to be reconciled with the income needs of individual family members. It is well known that a family business can be the glue which holds a large family together, but it can equally be a divisive force which corrodes family unity, sometimes driving the business to insolvency in the process.
In any family dispute, the alleged intentions of the founder will be used by both sides, so clearly stated guidance can help prevent potentially disastrous consequences. Such guidance is no easy matter, as it must allow future decision makers the flexibility to adapt to changing circumstances.
Many families also have to cope with inheriting specialist investments which rely heavily on the skill and experience of the founder or other family members. Some families want to continue the heritage of investing in new ideas and young companies, in which case a carefully crafted statement of purpose will be of enormous assistance, especially if things go wrong.
Cash, quoted investments and some properties may be easily divisible between family members, but an art collection, for example, may benefit from continuing in collective family ownership, thus requiring an agreed strategy, decision-making framework and governance.
The desire to promote family unity is sometimes a factor in agreeing the purpose of wealth. Unity is usually not driven by fairness through equality, but fairness through common understanding. Understanding is driven by communication and leadership. Leadership without a purpose is almost impossible.
If the aim of a “purpose” is to help a family set clear objectives and make better decisions, with a recognisable strategy for their wealth, then it must be clearly articulated. There are numerous conflicting issues to be addressed and reconciled, so a few bland headlines are unlikely to be sufficient. Purpose is much more detailed than a ‘mission statement’.
Families sometimes assume that by bringing up their children properly they will understand the family’s vision through osmosis. This is possible, but not easy, as families are rarely as good at consistent communication as they think. It is not what one generation says that it is important, it is what the other one hears that matters!
Other families therefore opt for a more formal process. It is likely to involve a number of family meetings, possibly assisted by an external facilitator, who will drive the process and make sure all voices are properly heard. The objective will be to arrive at a consensus which is accepted by everyone involved, despite the fact that they may start out with widely differing perspectives.
The need for agreement is greatest when assets such as a family estate, family business or art collection continue to benefit from a degree of common ownership which implies shared decision making. This particularly applies to families who are asset rich, but have insufficient cash flow to support all the needs of a growing number of family members.
Issues to be covered should include the following:
For those with landed estates in the family for centuries, the practice of primogeniture will be clearly understood, but may need to be discussed rather than assumed, in the light of changing values in society.
The issue for business-owning families is even more complex. If there is an agreed preference for the business to remain in family ownership, the reasons for this must be clearly stated, with well-designed caveats to provide for changing circumstances.
Similar considerations may apply to other assets where there is a desire to maintain them intact, and which require active management.
Whilst the main object of investment is usually to preserve and grow the wealth in real terms, changing attitudes and values increasingly emphasise the importance of ‘Socially Responsible Investment’ and ‘Impact Investing’.
Families with a business background may also wish to encourage a continuing culture of entrepreneurialism and participate directly in backing new ideas and talented individuals.
There are numerous issues which need to be discussed in defining the family’s approach, in particular the willingness to adapt investment criteria to meet social and other ‘non-financial’ objectives.
The ongoing income required to support family members will usually be a key factor and the need for income should be debated in some detail, especially where it conflicts with other objectives.
Wealth is only beneficial if it helps family members to lead more fulfilling lives and to explore their potential as human beings. This may lead to certain controls designed to encourage the young to make good use of their own talents, and not rely too heavily on inheritance to make their way in the world.
A strong theme underlying many of the decisions above will be the extent that the family wishes to use its wealth to benefit the wider community. In some cases, the motivation is a balance between genuine altruism and enlightened self-interest.
In many countries, increasingly hostile public attitudes to wealth represent a significant threat, which may be mitigated by demonstrating how that wealth benefits the wider population.
This contribution can be made through the way the family conducts its business and investment activities, creates employment and supports the local community, but many families also dedicate part of their wealth to philanthropy.
There are various ways in which the family can organise charitable giving, often including active involvement by a number of family members, so that it helps to reinforce the unity of the family, working together for the good of the community.
All of the above will benefit from clearly thought out structures and decision-making processes, which can only stem from a detailed and well-articulated statement of purpose. This will often include a set of agreed values which guide individual behaviour and which can be more strongly applied to collective decision making. For some the family ‘brand’ is important.
Purpose cannot be discussed without risk, and risk cannot be addressed in the absence of purpose and objectives.
Management of risk is one of the most complex subjects to be considered as risk takes many forms, from the performance of the family business and the volatility of the share portfolio to the more intangible risks such as family reputation or transferring leadership and control to the next generation.
The discussion needs to take place within a structured process, if meaningful results are to be achieved.
Wealthy families and entrepreneurs have relatively few options when considering succession. They may of course prefer to leave it to the next generation to manage the responsibilities and privileges of wealth without guidance, but they are still faced with practical decisions which cannot be ignored.
Most people want to avoid giving excessively prescriptive guidance which ties the hands of their successors, but may still wish to create some form of legacy which is more than just financial.
Those families and entrepreneurs who want to establish parameters for their legacy have three main alternatives:
Whilst a defined purpose of wealth does not guarantee success, the process of agreeing that purpose can provide families with a clarity and understanding that ensures the plan for the transfer of wealth is understood and not imposed.
There may, however be circumstances in which the differences are unlikely to be bridged by such a process, in which case the terms of the legacy and the parameters for decision making will probably need to be defined in enough detail to avoid ambiguity.
George Osborne’s 2015 “Summer Budget” raised some challenging questions for those who are resident but not domiciled in the UK. For centuries the UK has welcomed wealthy foreigners’ contributions to our economy, allowing them to maintain unremitted offshore income and gains outside the UK tax net. The problem is that, economic arguments aside, it is now generally considered unacceptable for such special treatment to be enjoyed indefinitely by people who have become long- term residents, particularly if actually born here.
The clear message to the Resident, Non-Domiciled (RND) community is not only that they will have to pay substantially higher taxes, but that the historic arrangements are becoming increasingly difficult to justify, morally. The implication is that these individuals have a social duty to make a larger contribution to their adopted country.
It is never easy to have a privilege removed, and in this case the proposed changes may have a profound impact on the financial, business and lifestyle arrangements of many wealthy families, particularly those with widespread business interests. For some, the issue is far more than financial, as increased taxation (particularly inheritance tax) may jeopardise their ability to retain control of family businesses that have been built up over decades.
The responses of such families to the changed environment have been varied, but surveys conducted by this firm provide evidence that attitudes are changing:
Most families affected will already be exploring their options, but changing attitudes may need to be reflected in the brief they give to their advisers.
Tax planning is no longer an exercise in outwitting the authorities, but rather finding a more balanced approach which takes account of increasing risks and changing social attitudes.
Artificial schemes, which operate within the letter but not the spirit of the law, are increasingly unlikely to succeed. They can also open an individual up to a wider investigation of their affairs, which is usually expensive to deal with, even where there is no wrongdoing.
Now is an ideal time for families to develop an agreed approach and set of guiding principles, accepted by all relevant family members. In particular, the younger generation may take a different view from their parents and, bearing in mind that tax planning spans generations, it is desirable that the arrangements put in place now are acceptable to those who may have to deal with the consequences in years to come.
The following are some thoughts which might help with deliberations:
The question of what is fair is a tricky one. It can be argued that it is fair that everyone should pay the same rate of tax. Equally, it can be argued higher earners should pay a higher rate of tax, following the mantra “from each according to his ability, to each according to his need.” Further still, it can be argued that as an immigrant to the UK, one should only have to pay tax on income arising in the UK: why should the UK government have the right to tax monies hard earned elsewhere in the world?
In this context, it is helpful to look at where the UK falls in comparison to other major economies. Resident non-domiciliaries have, for a long time, been generously treated under the UK’s tax regime and the question is whether, following the tightening of the legislation, they are still better off than they might be elsewhere?
| COUNTRY | INCOME TAX | CAPITAL GAINS TAX | INHERITANCE TAX | OTHER |
|---|---|---|---|---|
| United Kingdom | 20/40/45% (10/35/42.5 on dividends). | 18/28% | Spouse exempt, £325,000 tax free, otherwise 40% | Non-domiciliaries can for up to 15 years claim a) the remittance basis - no tax on unremitted income and gains and b) exemption from IHT in respect of non-UK assets. |
| United States | Progressive rates up to 39.6% | Generally taxed at 20% | Subject to a current exempt amount of US$5.34 million, tax is charged at 40% | US residents are taxable on their worldwide income and gains. Only very limited provisions allowing short-term residents to shelter foreign assets from tax. |
| Germany | Progressive rates up to 45% | 25% | Rates vary depending on the relationship between donor and done, as does the tax free amount, and apply to lifetime gifts as well as testamentary giving. | While the principle of testamentary freedom applies, a disinherited heir may claim 50% of the amount they would have been entitled to in intestacy. German residents or those with a habitual abode in Germany are subject to the tax on their worldwide estates. |
| France | Progressive rates up to 45%. Additional rates of 3% - 4% for income up to/over EUR 1million in certain circumstances. | 19% | Spouse exempt, child sibling 45%, other 60%. Forced heirship also applies to certain assets. | Wealth tax payable on assets of over €0.8 million. Heavy social security payments. |
| Australia | Top rate of 45%. | Taxed at income tax rates. Rate is reduced by 50% for assets over a year old. | None. | Temporary residents taxed on Australian source income and gains only. |
| South Africa | Progressive rates up to 41% on worldwide income. | Maximum effective rate of 13.65% on SA resident individuals on worldwide gains. | Testamentary freedom. R3.5 million can pass tax free, otherwise 20%. Spouse exemption exists. | Temporary residents / immigrants can shelter foreign income and gains provided they do not fall within the definition of tax resident in South Africa. |
SOURCE: Private Client Tax, Third edition 2015, John Rhodes, Stonehage Law Limited
As can be seen, the UK still has a broadly favourable regime compared to many other major jurisdictions. It is reasonable to conclude therefore that the UK’s current regime is relatively fair and normal, and indeed still likely to be more advantageous to RND’s than most comparable alternatives.
A tax haven is defined by the OECD as having three key identifying criteria: 1) Nil or nominal tax rates; 2) Protection of personal financial information; and 3) Lack of transparency. On the face of it, these are an attractive proposition for a wealthy individual looking to keep his affairs private and reduce his global tax liability.
The immediate benefits of living in one of these jurisdictions are obvious: little to no income, capital gains, or inheritance taxes and a perceived higher level of privacy and anonymity with regards to assets.
However, for most people, the sheer levels of life upheaval and lifestyle changes required are often the deal-breakers. The day counting; the constant travel; the time spent away from one’s family: these things can be, or can become, too much of an additional burden.
It is also clear that the days of secrecy and privacy are over. The Foreign Account Tax Compliance Act (FATCA) is already well under way and the Common Reporting Standard (CRS) has effectively been with us since the start of 2016. This means that most account holders will have details of their holdings and income reported to the tax authorities of their home jurisdiction. Most of the major tax havens have reluctantly already signed up to these arrangements, under pressure from the international community.
Perversely, the only major jurisdiction not currently participating in CRS is the USA, which is relying on FATCA to provide all of the information they need, having forced the world to comply with their legislation!
We must distinguish the morality of the individual from the morality of the law. People increasingly criticise the wealthy even for taking advantage of tax breaks deliberately created by the government and politicians are often keen to exploit this misplaced public ire for a short-term win.
The morality of the law is debateable. One can easily argue that the UK government has no right to tax funds that have been earned overseas, without any reference to the UK. On the other hand, it can equally be argued that if you are a long term resident of the UK and enjoy all the benefits that come with that, you should pay tax in the same way as any other “normal” UK resident.
Recent government policy changes and announcements are consequently designed to ensure that once you become a “long-term” resident, you should be treated for tax purposes on the same basis as those who are UK domiciled. For the time being, the government has determined that 15 years is the “long-term” watershed; less than the 17 years previously set for IHT in 1974, but much longer than any similar initial period in other countries such as Spain or even Israel.
More broadly, objections are frequently raised when wealthy individuals try to use ‘artificial’ schemes to gain tax advantages that were not intended. A notorious example is the film schemes which took advantage of an intended tax break, but pushed the boundary too far by removing most of the risks which the legislation was designed to encourage. It is not always obvious at what point the line is crossed between an intentional tax break and ‘an artificial scheme’.
FOCUS ON FILM SCHEMES
Gordon Brown originally enacted this legislation in 1997 in order to provide a boost to the British film industry, initially for 3 years, although it was ultimately extended a number of times. Initially, this appealed to many as an interesting alternative investment, but eventually people found ways to financially engineer products such that the benefits could be enjoyed by investors with significantly less risk. It is difficult to know when these schemes began to cross the line of acceptability and this may well not have been clear to investors at the time investments were made - it is easy to be caught out when one thinks there is a genuine investment opportunity.
No one is obliged to leave their affairs in such a way that the taxman will get the maximum possible share, but anything done to decrease that share constitutes tax avoidance. It quickly becomes apparent that tax avoidance is a vast grey area and what might or might not be immoral is a subjective question - one man’s “morally repugnant” tax avoidance is another man’s ISA, or duty free shopping basket. An individual’s approach to tax avoidance or mitigation must be based on their own level of comfort.
There have been high profile cases in recent years of people and corporations being exposed for engaging in various degrees of tax avoidance schemes. These range from companies such as Starbucks and Google transferring profits to lower tax jurisdictions and the “K2” scheme (used by individuals to move income offshore), to the swathes of people caught out by the ultimately failed film schemes. These have all been met, rightly or wrongly, by a strong, negative public reaction which has often been reinforced by criticism from the very top of government.
Whether or not you consider these schemes immoral (note that they were all legal), there is another matter to consider here - the issue of reputational damage. It is difficult to put a price on this but for many entrepreneurs, who hold the majority of their assets in their business, the impact of this has the potential to be significant; tarnishing both the name of the business and indeed the family name, which can be a brand in itself.
An individual is entitled to take advantage of tax legislation to whatever extent and in whatever way they are personally comfortable with, so long as they remain within the bounds of the law.
Some may take advantage of all legal means to minimise tax and others only of tax breaks which were clearly intended by the authorities. Some will always seek tax minimisation, whereas others will aim to keep their overall tax bill to a ‘reasonable’ level, an objective which needs to be defined and discussed with tax advisers.
It is important to note that those with fiduciary obligations such as company directors or trustees have to justify their decisions to their beneficiaries. Bearing in mind their effective obligation to maximise profits, a strong case will have to be made if tax minimisation is not one of their main objectives, particularly if personal moral values are coming into the equation.
Historically, offshore structures, while often used for tax avoidance, are also used for matters entirely unrelated to tax, including the mitigation of political and/or personal risk, and succession planning. In these matters, the tax consequences are often a secondary consideration.
In some countries, wealthy individuals can face imprisonment and the confiscation of their assets simply for having a difference in opinion with the ruling party. Transferring assets out of your own name and out of the country is thus an obvious way to mitigate this risk.
The relative anonymity of an offshore discretionary trust can also be put to good use in reducing risks for wealthy families. Kidnapping, for example, is a real threat.
Testamentary freedom may seem like a given to many, but there are a number of countries that restrict, to a greater or lesser extent, the ability to decide how one’s assets should be divided on death. Several offshore jurisdictions have laws that specifically do not recognise forced heirship and placing your assets into trust can allow you to pass on your estate freely.
In all of these scenarios, the avoidance of tax will be a likely by-product, rather than a driving factor in the planning. Do moral arguments against tax avoidance still stand up here? Even British legislation recognises that anti-avoidance provisions will only apply where tax avoidance is “the main, or one of the main” reasons for the planning.
In light of the major changes coming, it is a good opportunity to take a step back and look at the bigger picture: to assess one’s priorities and consider what level of tax risk one is willing to accept. No-one can predict specific future changes to the tax system with any confidence, but the direction of change is clear. Families can take the opportunity to put in place structures that are reasonably futureproof. The alternative is to adopt a more reactive approach, and try to adapt as the legislation is announced.
Given the constant changes, and the upheaval that they can cause, many families find it useful to agree a strategic framework and set of guiding principles, which help define their approach and philosophy. These provide a benchmark for individual decisions, as well as being a useful guide for the family’s tax advisers, in developing their proposals. It is also an important benefit of drawing up such ‘policy documents’ that the process helps identify and reconcile differing views between family members. The younger generation, for example, often has a slightly different attitude to tax avoidance and, given that they ultimately have to live with the result of any long-term planning, an agreed philosophy makes obvious sense.
WHERE IS MY RISK?
There are a number of areas where an individual taxpayer faces risk. Investment selection is self-explanatory and the closer one pushes the tax boundaries the greater the risk, naturally. However, it is also worth noting that having an excessively low tax bill can also add risk. Not only do you make yourself more of a target for HMRC, you are also likely to receive less leniency and a more thorough investigation in the event of an enquiry.
Such a framework will be particularly helpful to those considering the implications of the changes to the UK RND rules, given the many complex alternatives which could be explored. It will promote sounder, more consistent and more ‘joined up’ decision making. Greater clarity of purpose will reduce unnecessary debates and thus reduce the costs of professional advice.
Ultimately, deciding an approach to tax is a personal issue. There is a danger that personal advisers have engendered a mind-set of minimising tax at all costs, with little regard for anything else.
Individuals need to ask themselves: do I have an idea of the level of tax that I would consider to be acceptable? Am I able to achieve this level of minimisation within the bounds of moral decency? Am I willing to accept a higher level of tax payable in order to reduce the level of risk faced and to continue to enjoy the quality of life I have achieved in the United Kingdom?
With the direction of tax changes undeniably in favour of tighter legislation, fewer legal loopholes and a more focused approach on tax avoidance, there is an opportunity to consider a new, sustainable philosophy and approach, with some clear guiding principles.