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Mishcon Academy: Digital Sessions podcast - My business – that's none of your business!

Posted on 08 November 2022

The Mishcon Academy Digital Sessions.  Conversations on the legal topics affecting businesses and individuals today.

David Whittaker, Partner
Mishcon de Reya

In this episode, how important is privacy and confidentiality to ultra-high net worth clients?  How complicated is the current framework around information reporting?  And what can be done to preserve some degree of confidentiality for clients?

Well hello and welcome.  My name is David Whittaker, I’m a Partner in the Tax and Wealth Planning team here at Mishcon and I’m currently joined by Oliver Morgan Crosby, a Director at Evelyn Partner.

Ollie, we’re here today to talk about privacy and confidentiality in the context of the ultra-high net worth community.  I feel like that’s a really significant topic at the moment because there are so many different regimes that are now in operation, there are so many ultra-high net worth and high profile clients who are being splashed over the newspapers.  How important do you think privacy is to clients in this, this current environment?

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, privacy is certainly really important now, more so than ever.  It used to be that tax was very high on the agenda in terms of tax mitigation.  Clients used to look at how they can mitigate their tax liabilities, how they can keep that low and that was their main focus.  Things have shifted now to tax still being very highly on the agenda for clients but to make sure that tax compliance is right, to make sure that tax is appropriate but more importantly now, it’s all about making sure that structure still does what it needs to do, whether that be privacy or anything else.  Gone are the days of the kind of Panama style structuring where people were hiding money in offshore jurisdictions.  That simply isn’t the case and certainly not with reputable firms around the UK and globally.  We see our families wanting to protect their family, we see matriarchs and patriarchs of families desperate to make sure that their children aren’t kidnapped, that their family properties and yachts and various assets that they spend time on, aren’t constantly being circled by a media helicopter. 

David Whittaker, Partner
Mishcon de Reya

Yeah, I think that’s right and there’s, there’s an interlinking isn’t there between the tax advice that we’re giving and a tax optimisation and privacy because I think now, as you say, in light of the Panama Papers and those data hacks, there’s been a real public shaming of people who have engaged in aggressive tax avoidance or use of offshore structures to try and shelter income that they’re not declaring and I think now we’ve gone, it’s sort of gone so far that actually there is a real sensitivity around an individual’s tax affairs getting into the public domain and as a result, a real desire, you know to ensure that your structure is as vanilla as possible, so that if there is ever a leak and obviously we try to take measures to ensure that there isn’t a leak and that, as you say, people’s data and privacy is protected but actually, you want to, there’s a reputational element that I think perhaps we never really considered in as much detail as we do now. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, that’s definitely right and I think when you read back, I’m sure you’re the same, when you read back some of the advice that our clients have received in the early 2000’s, most of the time you look at the, even the language of the advice itself, it’s really talking about you know this is how you can save tax, this is what we’re doing for you to be able to stop this part of your structure paying any tax.  Whereas now, all of that advice has to stand up to the commercial scrutiny and that’s firstly from the tax authorities around the world but probably more so from the media, from the public, exactly coming to your point, you look at the issues with Rishi Sunak and his wife that came through a few months ago, you know the reality was when they were initially advised on that, it wouldn’t have come up, that discussion about you know how would this look, it wouldn’t come up and to go to your point on the sort of vanilla structuring, you look at something like the remittance basis, it’s fairly vanilla, it’s a vanilla piece of structuring.  It’s a well-trodden path, it's been around for decades and decades and the reality is now, is that looking backwards, sometimes those pieces of advice seemed so vanilla at the time and then you look at them in a different light of day, in different economic and different political and in different social situations and it really doesn’t stand up and I think what that probably dictates to us, is that these situations are constantly evolving and therefore the advice has to evolve.  So those kind of structures just need to be looked at.  That kind of advice needs to be revisited and if it does stand up, then some rationale behind why that advice is in place needs to be put there because the data is in the public now and even the data that’s not in the public, if it is leaked to the public, it needs to stand up under scrutiny of the layman, of the public, not of tax authorities. 

David Whittaker, Partner
Mishcon de Reya

I think that’s exactly the right point isn’t it and just to pick up on the point you made about Rishi Sunak and his wife.  You are absolutely spot on, I think there’s the way that we see the structures and that they are pretty vanilla and that clients all over the world doing this and we commonly use offshore jurisdictions for entirely legitimate reasons but I think the way that it’s presented in the media, and it was so frustrating to read some of the coverage around Rishi Sunak and I was thinking to myself, well I’m a tax expert and I know that some of this is incorrect but obviously, the media are reporting on all sorts of things like rocket science or nuclear power about which I know nothing and I get all of my news from the media so, you’re a bit concerned about what else are they misreporting. 

Oliver Morgan Crosby, Director
Evelyn Partners

But, but, yeah, you also realise that in the media, they sort of don’t need to know the truth, do they, they need to write something that people are going to read and that resonates with people and actually, in something complex like tax or like rocket science or whatever, it’s almost better for them not to be getting involved in the details because unless you are a tax expert or in the industry, you’re probably not that interested in it but the reality is, is what you want to read is the headlines of, you know, non-dom saves tax because of claiming to be not based in the UK and those kind of headlines is what sells the newspapers, what gets people reading.  It’s exactly the same with the Panoramas that you sometimes get which completely, rightly so, simplify and dumb down what is an entirely complex, huge issue with all sorts of different facets and they dumb it down to a, you know, a simple one page diagram that they can explain to the layman without the layman having to think at all.  And then they tear it apart based on the complete simplification of what’s a very complex matter. 

David Whittaker, Partner
Mishcon de Reya

Yeah, exactly.  It’s sensationalises the news, without really a proper appreciation of the nuances and the tax complexities that we’re advising on.  Yeah, I think that’s the environment that we’re advising in now and that’s always what I have to have regard to when I’m talking to clients about going into structures and legacy planning and succession planning is one of, how is this going to play out if it were ever to get into the public domain and also, you kind of have to have one eye on the future.  How is it going to play out when your children are taking over the business and you’ve got to have that public relations element in mind at all times, I think. 

Oliver Morgan Crosby, Director
Evelyn Partners

Definitely.  And I also think, as we look to the future, we’re seeing it now but so much more reporting to tax authorities, to come back to the sort of tax authorities part of the whole reporting culture and the who you have to answer to now, what’s really I think interesting now is you see the new generation having to report so much more to local tax authorities and tax authorities exchanging so much information that ten years ago, it didn’t really matter whether information was up to date on records for trustees, for banks and offshore jurisdictions because no one ever got hold of that and it was an internal record.  Now that information is transferred and we’ve had clients with letters from HMRC, from foreign tax authorities, either nudge letters or specific letters to the client saying we know about x, y and z and there’s a few kind of horror stories of that where, you know, one is, we know about x, y and z and we didn’t, as the tax advisors, so we suddenly get on the phone to the client and we say this letter’s quite important, we need to put your, you know all the cards on the table here because we can’t advise unless we’re in the picture here, we don’t know.  But the other thing is, we had a letter from HMRC actually that talked about we’ve got information from an offshore jurisdiction that you hold millions of pounds in this bank account and this is your chance to come forward about it, you know, we’ve received information from the bank and our letter back to HMRC there, without advice, that client may well have sent a letter back to HMRC saying oh sorry, well bring us up to date, we’ll report it now.  We look back through historic data and historic tax returns and said to HMRC, thanks very much but that amount of income has been on his tax return for the last three years so, if you’d just looked at his tax return, you wouldn’t have had to receive that information from the Cayman Island bank that you thought that you were getting for the first time.  So, although there’s all this data that goes back and forward between authorities, the reality is that actually the data is poor data and there is so little resource at HMRC and all of the offshore tax authorities, it’s very difficult to bring any sense of that data.  

David Whittaker, Partner
Mishcon de Reya

Yeah and I think that is perhaps, you’re quite right, I think it’s insufficient resource within the tax authorities to review it but also the sheer number of avenues through which they receive this information, right, there are so many different reporting regimes now that we need to be aware of and thinking about when we’re thinking about succession planning or an offshore structure for a client.  So, we have just to name a few off the top of my head, Register of Overseas Entities for companies that are holding property in the UK, we’ve got the Persons with Significant Control Register of UK companies, we’ve got the Trust Register, to tax both offshore and UK trusts, we’ve got CRS, we’ve got FATCA and there’s probably a few others that I haven’t even thought about and obviously that’s just those that we’re concerned principally about in the UK, that’s not to mention…

Oliver Morgan Crosby, Director
Evelyn Partners

And, and a few of them, fairly new, you know off the block, it’s not like this all happened five years ago and now we’re living in that environment, this is constantly evolving, there’s new things constantly coming in.  Do you find that most of your clients are worried about public registers but not particularly worried about giving information to authorities, you know tax authorities, government bodies?

David Whittaker, Partner
Mishcon de Reya

In some respects, it depends on the client and where they’re from and, because I think there are some clients that are from particular jurisdictions where there is a real concern about the information that goes to the authorities and how that might be used.  Obviously, Ritz-Carlton is a case in point but there are also other examples of where that information is being used improperly or could be shared with people that it shouldn’t be shared with but on the whole, I think you are absolutely right, there’s certainly no, no reluctance on our clients to comply with their regulatory obligations but there is a concern to ensure that their information is not unnecessarily publicly available and that’s often the sort of the elements that we’re looking at and people are concerned about privacy for a whole host of legitimate reasons.  I had a client recently who was the sister of a well-known deceased actor and she had inherited all of his IP and his image rights after his death and she had used those proprietary rights to enter into a venture with a production company in the US and she made a very successful series based on his image.  Anyway, as a result, she received all sorts of vitriol and hate and trolling online because she was deemed by his sort of super fans to be exploiting his legacy.  Anyway, a few… fast-forward a few years and she’s been given an offer from a UK production company to do a similar sort of series using his image and she’s very concerned about her privacy and the fact that she’s engaging in that venture again and that will get out and so she was come to us to say well, if I were to enter into this UK JV, you know, what are my reporting obligations, will my identity be publicly disclosed?  And our answer was, well, in principle, yes, on the basis that the Persons with Significant Control Register but there might be solutions we can consider, either whether you forward them one of the exemptions for fear of being at risk of violence or intimidation or we could look at structuring solutions that may preclude your identity being publicly reported.  But it’s a massive concern and something that you, you know it’s this sort of blanket everybody doing this particular structure, needs the report, it’s really quite a blunt instrument and I think you’re right, it’s evolving so quickly that a lot of the legislation has maybe not been entirely thought through and the way it operates is not really that logical or really giving the government the information that they really want. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, exactly.  Yeah, definitely.  And I mean, we had, we had a similar type of situation actually with the new Register of Overseas Property Owners and it kind of highlights that this doesn’t have to be, in terms of confidentiality and why and who, yes, you seem to see  a lot of Middle Eastern clients who are desperate to sort of maintain that anonymity, confidentiality because they’re worried about what authorities are going to do with their data but actually you see it close to home, we had a Spanish client whose daughter, an ultra-high net worth, you know, multi billionaire whose daughter had actually been kidnapped and held ransom and thankfully, that had all resolved itself and his daughter was back but as a consequence of that, when the Register of Overseas Property Ownership came in, this was a huge, huge thing that to the point where we were selling properties, you know, he said under no circumstances do I want people knowing that that’s my house and that’s my family home, even in the UK, you know these are UK properties where he said I don’t care that the UK don’t have that sort of system and it generally is a safer environment and he said if it’s registered back to me and people can know that it’s my property, I don’t want it. 

David Whittaker, Partner
Mishcon de Reya

That’s really difficult though because that legislation came in force with virtually no notice because it sort of comes in with retrospective effect, right.  So, if he owned the property whenever it was, as at February or March earlier this year, he’s reportable, even if he subsequently disposed of the property in the meantime. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, exactly, and so some of the, you know, like with all of these things and actually it’s funny, as you say, it’s almost a retrospective reporting obligation and that’s why it sort of involves that delicacy and working very quickly to be the disposal or come with a solution.  Whilst that is a reporting issue, you see it exactly the same things that came in, you know, like we said right at the start when we said that where it used to be tax minimisation, it’s now all about protection of structures and anonymity confidentiality.  The same almost respective reporting came in if you remember in 2012 when ATED came in and suddenly it was a case of, ah well it’s okay, if you don’t want to pay ATED, you can de-envelope.  Well, there’s massive costs to de-enveloping so, you have all these structures now paying the annual tax on envelope dwellings that if you had set them up today, you would never set them up in that situation but you’re stuck because of the cost of de-enveloping that.  It’s a similar thing now we’re seeing with reporting, where there’s a huge cost to change the structure or you have to lump the fact that you’re just suddenly reporting something on the basis that you never thought you needed to when you set the structure up. 

David Whittaker, Partner
Mishcon de Reya

I think that’s a fantastic case in point isn’t it, the residential property, because when we both first started, virtually all foreign investors coming in and buying ultra-prime property in the UK would do it through a trust and underlying company structure and then they introduced ATED, imposing the annual charges but I think on the whole people were quite happy to keep their structures on the basis of the other benefits that were conferred.  Then we subsequently had the Capital Gains Tax charge introduced and then the IHT advantages taken away and it still at that point, as you say, there was obviously a cost to de-enveloping but I think the singular advantage that was still derived from that structure was privacy and now they’ve taken that away and so I think a lot of  people who were making these, you know these fantastic investments have sort of had the rug pulled out from under them a little bit in that they now will no longer have any privacy in respect of their ownership of these properties and it’s, it’s a real concern for people. 

So, I think, you know, we’ve covered a lot of ground in terms of the regimes and the different reporting obligations that apply.  What sort of things have you done to try and protect clients’ privacy or mitigate reporting or at least manage the reporting?

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, I think to protect people’s privacy as the game is constantly changing, is a much harder position than to make sure everything is in place and actually, it’s as much these days about reassuring clients where the reporting is going as it is to say look, okay, we’ll move to this structure that might maintain privacy, you know, we’re used to nominees to try and maintain privacy and to try and get around some of the obligation.  That is all well and good but the reality here is that it’s such a fast moving pace that quite often the best solution is just to say look, let’s just make sure everything is, it goes back to your point right at the start, everything is as vanilla as we can make it.  Because it’s a vanilla structure, the reporting is as minimal as we need to make it and it’s very easy to get that reporting spot on so that you don’t get a letter from the authorities in five years’ time saying well hang on, this reporting was wrong.  So for example, we have a family, an international family, with trusts with a French brother and we’ve already seen the amount of penalties that the French tax authorities can put on you for inappropriate reporting…

David Whittaker, Partner
Mishcon de Reya

Absolutely. 

Oliver Morgan Crosby, Director
Evelyn Partners

…in France and it’s almost a case of well, look at what’s happened there, let’s learn our mistakes and now that we have all these reporting obligations in for UK, let’s make sure we get that right completely from the start, whether that be by de-enveloping, by winding up structures or whether we go into these structures and make sure that we know exactly what the data that’s been sent is and we get that data right. 

David Whittaker, Partner
Mishcon de Reya

And that’s the difficulty, right, it’s because the way that the different rules and regulations apply, imposes the reporting burden potentially on different entities, so you can have a bank reporting account information for a company that is also doing some reporting and they may not necessarily have sight of what the other is reporting so, what we’ve done for certain clients is try to engage in an exercise where you consolidate and streamline that reporting burden so it’s all being done by one or two entities and there are obviously certain things you can do from a common reporting standard, you can try and ensure that if your assets are managed by a Type 1 financial institution then you are potentially changing the characterisation of that entity from a CRS perspective such that it’s responsible for its own reporting and I think a lot of clients are much happier to be the ones in the driving seat and in charge of what they are reporting.  I think the concern, as you say, is that there are all of these different sort of channels through which the information is being reported, tax authorities can’t deal with it and there’s not sort of way to make sure that the information being reported is consistent. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, and actually that finally, that touches on a, another point around information within families anyway.  With ultra-high net worth families, we see it hugely with our family offices, that’s a problem itself in terms of what’s reported to the tax authorities but actually it’s a huge problem for the family itself in terms of what they have, what their worth is, where things need to be changed, where assets need to be changed and where assets need to be you know held or improved and so we have a, or we’re working with families at the moment to give a technical solution, a tech platform for family offices, where they can report as a reporting tool in one place, so linking to banks all over the world, linking to public markets all over the world with a direct link so that live feeds on prices comes straight in but then also, the less liquid assets, the yachts, the planes, the houses, all in one place and being able to report that all in one place, allows the executives of the family office to have a much tighter grasp on what’s going on with the family and therefore a much a tighter grasp on making sure reporting is correct. 

David Whittaker, Partner
Mishcon de Reya

Yeah, I think you are absolutely right.  I mean, that’s an enormous topic in and of itself, we could do another session on that, couldn’t we, I mean, because there’s a whole issue there around the extent to which children within a family are exposed to or become aware of, through public reporting, their own family’s wealth and assets and, you know, the parents could quite legitimately rather like to restrict the extent to which their children are exposed to this information and that can be quite key to succession planning. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah, I actually found a very funny anecdote on that is that we had a son in his mid-twenties, of a high net worth family that we look after, ask us why he was being asked to sign a prenup before he got married because he had no idea that the family was worth so much money.  So, he couldn’t understand why his, you know, why his family were saying it was probably a good idea to sign a prenup.

David Whittaker, Partner
Mishcon de Reya

Oh really. 

Oliver Morgan Crosby, Director
Evelyn Partners

He said why would I need to sign a prenup?  And they had to say well because you’re worth quite a lot of money.

David Whittaker, Partner
Mishcon de Reya

Interesting. 

Oliver Morgan Crosby, Director
Evelyn Partners

Yeah.

David Whittaker, Partner
Mishcon de Reya

Well that’s the thing, yeah, it’s, it’s a really difficult environment I think for families these days and I guess in a shameless plug for our industry, what I would suggest is that if they are contemplating building their legacy and implementing effective succession planning, the privacy and confidentiality is a key tenant of that.  Well I think that’s probably all we’ve got time for.  Ollie, thank you so much for joining me.

Oliver Morgan Crosby, Director
Evelyn Partners

You’re welcome.  Thank you. 

David Whittaker, Partner
Mishcon de Reya

I think this was a really useful discussion.  Just as way of a reminder, I’m David Whittaker, this has bene Ollie Morgan Crosby.  The Digital Sessions are a series of online events, videos and podcasts, all available at Mishcon.com and if you have any questions you would like answered or suggestions of what you’d like us to cover, please do let us know at digitalsessions@mishcon.com.

 

The Mishcon Academy Digital Sessions.  To access advice for businesses that is regularly updated, please visit Mishcon.com. 

In this podcast, Partner David Whittaker is joined by Oliver Morgan Crosby, Director at Evelyn Partners, where they discuss how important is privacy and confidentiality to Ultra High Net Worth clients, how complicated the current framework around information reporting is and what can be done to preserve confidentiality or mitigate the reporting burden.

Visit the Mishcon Academy for more learning, events, videos, podcasts and reports.

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