Wealthy investors pile into money markets
Mark Davies is used to flying around the world, typically visiting Geneva and Monaco every month in his work as a tax adviser for the super-wealthy.
Now he’s sequestered at home in southwest London because of the coronavirus pandemic, which is wreaking havoc on his business and the tax plans of his wealthy clients similarly accustomed to globetrotting.
“The pandemic means we’ve now got people stuck in the U.K. who didn’t intend to be here, and people who did want to be here that couldn’t,” he said. “It’s gone both ways.”
As nations have closed borders, some affluent individuals are confronting unexpectedly complex tax situations.
These include the prospect of higher levies from spending too many days in a foreign locale, or having to shelve plans to obtain tax breaks by moving abroad.
Australia, the U.K. and Singapore have issued guidelines to ease concerns about tax residency for individuals trapped because of the virus, but they’re far from fail-safe guarantees.
And even as the U.S. and Europe follow Asian nations in phasing out lockdown restrictions, the prospect of global travel returning to pre-pandemic levels remains well in the future.
“It’s not coming to an end any time soon,” said Simon Goldring, a London-based partner at law firm McDermott Will & Emery. “There’s going to be people stuck in different jurisdictions who inadvertently become residents there.”
Spending more than six months in a country typically makes someone a tax resident, although the location of permanent homes, travel histories and income sources are also factors.
That makes the tax residency of the wealthy -- owners of private jets, houses and businesses worldwide -- especially complicated. And it becomes even more so when each nation applies different criteria.
One test the U.S. uses for tax residency considers how much time a foreigner spent in the country over three years, while Germany uses a four-year window and Ireland two.
Nations also have tax pacts with other countries that override domestic laws and would apply to residency disputes in the absence of pandemic provisions. Resolving tax issues from the coronavirus will be a complex and costly process for some.
Goldring said he moved one client across Italy and France this year to ensure they didn’t exceed the U.K.’s residency thresholds.
“There’s a very wide range of possible impacts,” said Paul Sczudlo, an attorney on Withersworldwide’s private client team. “It could affect retirement accounts, trust and estate arrangements.”
The pandemic has also thwarted plans of those hoping to relocate this year to a country with lower taxes.
In the past, tycoons including steel magnate Lakshmi Mittal, Daily Mail owner Viscount Rothermere and Chelsea Football Club owner Roman Abramovich have made use of U.K. tax exemptions on overseas earnings in exchange for an annual charge.
Davies has helped wealthy individuals move to Britain from Spain, France and Latin America, but that part of his business is now stalling.
“They’re all stuck,” he said. “They’re all saying: ‘We’re going to wait and see.’”
When nations reopen their borders, the wealthy may face even more tax trouble from governments looking to recoup the economic costs of a virus that’s heightening global concerns over inequality.
BlackRock Inc. Chief Executive Officer Larry Fink is expecting increases in U.S. tax rates for businesses and individuals, while academics in the U.K. have called for wealth taxes on the nation’s richest residents.
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“Taxes are only going to go one way -- up,” said Menna Bowen, a partner at law firm Gunnercooke and tax adviser to Blu Family Office. “Someone has to pay for all of this.”