What impact do geopolitical events have on international advice?

0:12Welcome to the FT Advisor podcast. I'm reporter Harold Mills. Today we'll be discussing the rise of international advice and whether there has been a genuine shift in how globally mobile clients manage their money. Not long ago, amid a bleak economic outlook and changes like the introduction of inheritance tax on pensions, it felt like high net worth individuals could not leave the country quick enough. And now, as conflict reigns in the Middle East, internationally mobile clients are again exposed to increasing uncertainty, including questions of safety and tax residency. I'm joined by Jeremy Harding, Head of Wealth Management at Norman K London, and David Thorpe, Senior Investment Editor.

0:52Thank you both for coming in. Thank you. Thank you for the invite. So Jeremy, is geopolitical tax and uncertainty contributing to a fundamental shift in the way internationally mobile clients are managing their wealth? Yeah, I think so. I think what's important to remember is wealthy families have been internationally mobile for a long time. And I think what we've seen is those families have always had a contingency plan, but they haven't had to execute it until recently. Obviously, we had the changes to the non-domicile rules back in 2024 that came into effect last year. And then more recently, the war in the Middle East, which has made people recalibrate their positions, particularly the ones that were UK resident.

1:37I think a lot of those families have now had to consider moving to other jurisdictions. And one of those jurisdictions was Dubai. others have seen places like switzerland monaco jersey and other and other locations as areas that they feel less exposed to the more punitive tax that we've seen come into the uk so we have seen a shift of of those clients moving away from a residency perspective when it comes to managing wealth, I've seen less of a, I guess, a fundamental shift, as you put it. Some of those clients have had to think about the structures that they hold their investments in, where they're resident, if they did hold particular structures, particularly those in the UK.

2:28But when it comes to holding assets in the UK, a lot of international families still have UK bank accounts and will hold assets in UK bank accounts. Sometimes the management of the wealth when it comes to the underlying investments within that have had to change. And that's mainly driven by changes to tax policy in the UK. So have those changes been a long time coming or do you think it's been a sudden acceleration in the last 12 months? Well, if you think about the last 12 months in isolation, we've had mainly two geopolitical events. First of all, in April last year, we had Liberation Day in the US, which was the introduction of much higher tariffs as Donald Trump tries to rebalance international trade with the US.

3:15And then obviously, in the last two months, we've had the conflict in Iran. So if we look at the last 12 months, I'd say we have seen a real change. And a great example would be, thinking back to the beginning of the conflict in Iran, you know we had families in the Middle East that we've been speaking to for some time that are naturally now proactive with us around how they can move assets out of the region for security purposes and for diversification reasons so a lot of families that were domestically focused in the region are now considering diversifying outside of that part of the world And that's mainly driven by security of those assets.

3:59When it comes to the tariffs that were implemented last April, if we think about what that meant for markets, obviously we saw a very quick correction into markets, but then a very sharp recovery, a V-shaped type recovery. I think when people, investors are looking at that, following that event, I think people are now considering things like how exposed they want to be to the US and particularly maybe the US dollar. One thing we're sure about with Donald Trump's second term in power is there's a high degree of uncertainty and he's willing to push policy through a lot quicker. And so there's a lot of volatility around the US.

4:43So clients and investors are much more cautious around how they position themselves, given that level of uncertainty. Thank you. Does that also translate into what portfolio construction looks like in the sense of maybe wanting more liquidity? Yeah, I think so. Liquidity is probably one thing that all of our clients here at Norman K are looking for. So most of the assets we hold are highly liquid. And I think investors are always looking at investments that they can turn liquid quickly. The other thing I think we've seen is a shift from a portfolio construction perspective is the traditional equity bond portfolio is less resilient in markets.

5:27You've seen bonds and equities a lot more positively correlated over recent years, which has not been the case when you look back over multi-year periods. So clients are now looking at other assets like commodities. Gold has been obviously some form of hedge against some of these geopolitical risks. Up until recently, cryptocurrency. So some clients are now looking at those sorts of alternative asset classes as a way of building in some form of hedge, particularly when we're thinking about dollar debasement, which is something we have seen since the tariffs that were announced just over 12 months ago.

6:06Yeah. And are attitudes to crypto changing? Are they, are, yeah, I mean, the stereotype is that the younger generation like crypto and the older don't. But is that, is that changing? Yeah, I think so. You know, you've seen large institutions, particularly also governments start to favor that asset class and look at it, you know, in a different light. And I think you're right. The younger generation will view that asset class differently to maybe an older. For us, when it comes to managing portfolios and portfolio construction, we see it for the right client that has the right risk appetite as playing a small role in a portfolio.

6:42A small role might be 2%, 3 % in a portfolio. Just to potentially be there as a bit of a hedge, act as an element of a diversification. But we're not seeing clients, even the younger to the older generation, take large stakes in that position. But having a small allocation, we think, is probably sensible. Thank you. So, Jeremy, you've spoken about how tax polity and geopolitics are affecting asset allocation. How is it affecting where people choose to live, what jurisdictions they choose to live under? Yeah. So, look, I think if we think back to the big change, which was the changes to the non-domicile rules that came into effect last April.

7:24so meaning that international families that chose to live in the UK depending on how long they lived here may be taxed on their worldwide assets and also be exposed to inheritance tax in the UK a lot sooner than they would have otherwise. We have seen a net migration of wealthy families leaving the UK I think that's clear. What obviously has been interesting over the last couple of months is those families are now re-evaluating that position because it's not necessarily just a tax driver, it's now looking at maybe security and safety of family. Those families, I don't believe, will naturally look to come back to the UK.

8:04We've seen one or two. Whilst the UK has still relatively punitive tax policy, particularly for international investors when it comes to maybe buying real estate, getting a visa, investing in the UK, I don't necessarily see those families returning to the UK, but may look at other jurisdictions to reside. So we've seen Italy, the Channel Islands, Monaco, Switzerland to some extent, Singapore, families looking at those places to move to. And so do you think conflict in the Middle East has led clients to re-evaluate the balance between tax policy, geopolitics and lifestyle in choosing where to live?

8:48Yeah, I think so. And I think all three of those play important variables into a client's decision on where they want to be. And also, look, it's always dependent on the family situation. A young family needs to think about education, healthcare, lifestyle for them and their family. And I think if you put them in order, I think tax policy remains the main reason for people taking the decision to move, particularly out of the UK. The geopolitical piece has probably become more prominent in conversation over the last three or four years, probably since the invasion of the war between Ukraine and Russia.

9:36Before that, it's always been on people's minds, but people haven't had to be particularly proactive around where they want to live, where they want to hold assets, as they have had to be in the last three or four years. Do you think Europe sometimes occupies the middle ground between the UK and the UAE? It's got cultural elements from the UK, and then it's got some of the tax elements from the UAE. So we're kind of missing out on both. We're doing neither. Yeah, and I think we have seen, particularly places like Italy, Portugal, as places that people have decided to move to. I think what some of these jurisdictions miss is the ecosystem to manage wealth.

10:17So London will always be a hub for wealth because of its financial ecosystem. We have fantastic banks, asset management, accounting, legal. The financial ecosystem is there, unlike maybe some other European cities. So when it comes to wealthy families looking at other jurisdictions, Yep, you've seen Italy and places, people decide to move there. I still think London, you're right, is missing a trick slightly because we probably have a lot more advantage compared to those cities if we had a more accommodating tax regime. Do you think we're missing a trick in that we've built up over the centuries this brilliant banking and legal system?

11:02And actually we've got the infrastructure that's very hard to put in place. but we're not maximising our potential through our tax policies? Yeah, no, I think so. In short, I believe so. And look, I understand that if we go back to the non-domicile rules, those rules were in effect for a long, long time and they probably needed to be redesigned and re-evaluated. I think the UK government would, you know, it would be nice to think that they may review what the impact of those changes has meant for wealthy families moving away from the UK or picking the UK as a jurisdiction to live in the future.

11:41And then there's talk of potentially increasing the foreign income and gain regime from four years to slightly longer because it's very difficult for an international family to think about uprooting their current lifestyle to move to the UK for such a short period, knowing that after four years, they may have to leave again. and we'll have to wait and see or maybe capping like we've seen in places like Italy you just cap the amount of taxes paid on an annual basis so that people know what they're paying and they can make an informed decision on that so yeah, I believe we are missing a tree Could you unpack for us that four year rule that you mentioned because it is quite advantageous for four years and then less so But as you say, it's a big commitment to have four years of advantages.

12:31Yeah, look, and the caveat here is I'm not a tax advisor. But yeah, of course, it was a change that came into effect last April. Previously, you had the remittance basis of taxation, which meant that international families could come and live in the UK for up to seven years. And they could keep their offshore income and gains offshore and not pay any tax unless they remitted it to the UK. And after that point, after that seven years, they'd start paying a remittance charge to continue to shelter those assets offshore. Now, from April, the change was that that remittance basis of taxation would be scrapped.

13:08And instead, they're bringing in a foreign income and gain scheme, which essentially meant for the first four years of living here, as long as you hadn't been here for 10 years preceding that, you could remit any income, any gain offshore into the UK and keep it offshore. and you wouldn't pay any income or capital gains tax. After those four years, that changes drastically, meaning that any income and gain, whether it's remitted to the UK or not, you're taxed at UK tax rates on a rising basis. So, you know, that's quite a big change. And I think the other big change we saw is changing to what they used to call domicile, we now call long-term resident.

13:48So for families that then had been living in the UK for 10 tax years, they would then be taxed on their worldwide estate. So those changes for international families that, as we mentioned earlier, are mobile, meant that they voted with their feet and a lot of them left, particularly ones that were soon to encroaching that 10 years or after that 10 years, they had to move quite quickly. And we did see, unfortunately, a lot of wealthy families decide to maybe not sell the assets they had in the UK. They maybe still own homes in the UK, but they probably owned homes in maybe the French Alps or Switzerland or Dubai.

14:34And they took themselves and sometimes family members to those places. So they cut that UK residency time. So I suppose a challenge of attracting wealth back to the UK is people want long-term planning and they want continuity. obviously we're you know politically quite fractured at the moment you know talking new governments new policies everyone's got a different policy and that makes it hard for clients to plan long term so what how can the uk signal that it's it's going to be kind of open to clients and it's going to be a longer term strategy or do you think it's quite hard to get clients back long term yeah i mean as we've spoken about i think from a infrastructure perspective the uk ticks a lot of boxes, it's still a great place to live for wealthy people, be that to manage their wealth, to live, to enjoy all the life enrichment offerings we have, particularly if you think about London.

15:33I think you have to recognise that for a lot of wealthy families, London and the South East is the part of the country that these people naturally migrate to. I think it will be difficult for the UK government to completely shift and rethink about how they would tax international clients. As I mentioned earlier, there's a few things they could potentially look at doing, and it's been discussed openly between professional service providers and legal and accountancy firms on some things they believe would incentivize wealthy people to come back to the UK. but unfortunately I think some of the damage has now been done.

16:17You know if you think about a family that has taken the decision to leave the UK often that family will have children in education and they may have set up a completely new life in a completely new country and the UK dampening down on some of their tax policy probably wouldn't be enough to bring them back. The UK still offers a capability of people to come back to the UK to spend some time here, you know, between, you know, up to maybe 180 days in some cases, but a lot of families, it's around 90 days. And as I mentioned earlier, the weather's not particularly favourable most of the year. So a lot of families just choose to spend, you know, spring, summertime as we, you know, if we sit here today, it's a glorious spring, spring day.

16:57I think that that's the time of year we'll see those families come and spend time in the UK, but bringing them back to live is going to need some, yeah, a real rethink about particularly tax policy and not just residency. I think that comes also to property. We've seen big changes in property tax since, I think it was 2013 when we changed the tax policy around owning property in offshore structures. And then we've seen from that a huge change in stamp duty rates to mean that if an international family now chooses to buy a property in central London, super prime central London paying£10 million, they can pay up to nearly£2 million in tax.

17:48So what do events in the international space mean for advisors, financial advisors in the UK? Yeah, so I think it's clear as we've spoken about, a lot of people are now turning to considering their position in the UK when we talk about wealthy private clients and we've seen them move offshore to jurisdictions as we've highlighted during the podcast today. We've seen a number of inbound inquiries around supporting those families with those moves and particularly when we think about what it means to giving them financial advice whilst they're abroad and I think as a UK regulated advisor we we we have challenges around that because we need then specialist advice services in particular jurisdictions that they have both regulatory authority but also the specialist capabilities to serve those clients so if you think about a client that's maybe moving to somewhere like Portugal you know there's there's certain considerations that need to be taken into account first of all cross-border so if you're in the UK, you know, you need to think about, well, can we actually advise a family now living in Portugal?

19:01A lot of the times that might be quite challenging. So we are seeing a number of clients move offshore and it's becoming more challenging for a UK-based advisor to look after those. We have a benefit here at Norman K that we have offices across Europe. So we can cater for those clients that are then looking to move abroad. But I have seen a shift of, you know, other asset managers wealth managers thinking about setting up licenses in different parts of particularly Europe to cater for those to cater for those clients and to put you on the spot Jeremy what is the one biggest mistake you get with clients coming to you the biggest mistake um I think talk a bit about again about tax is um and i've seen this on a few occasions where there's no pre-planning done either that's through a business sale i think a lot of you know probably 80 percent of the clients we look after are entrepreneurs or ex-entrepreneurs that have had a liquidity event during their uh during their time and and in in a few of those cases they've come to us at a point where it's either very close to the exit or it's post-exit and there's been no pre-planning done.

20:20And that comes in different forms in terms of what you can do to be more tax advantageous for life after business exit. The other thing I've seen in my time as a wealth manager is when we've seen families move to the UK from abroad and not taking the right tax advice pre-arrival. So nowadays, that's probably changed slightly with the changes of tax regime around the foreign income and gains ruling. But previous to that, we saw a number of clients arrive in the UK. They hadn't segregated assets in the right way. and that's obviously quite messy, time consuming but also costly to those families that have come here before doing that pre-arrival planning as we used to call it.

21:14Well that's a great answer. We could talk about this all day but I feel we're running out of time. So thank you very much for coming in Jeremy and thank you for joining us David. This has been the FT Advisor podcast with reporter Harold Mills. Thank you for listening.

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