Whether you’ve inherited a fortune, landed a life-changing win on EuroMillions, or worked incredibly hard to accumulate a considerable number of assets throughout your lifetime, tactical tax planning is the cornerstone of wealth management when it comes to high-net-worth individuals (HNWI).
While it’s true that some of the wealthiest people were fortunate enough to have been born with a silver spoon, there are many who have built an empire from the ground up. And, for such individuals, it may very well be a matter of having an innate business acumen, determination to succeed, or, in some cases, sheer luck.
Of course, luck comes in many forms. It may be something as unlikely as hitting the jackpot when gambling at exclusive no deposit casinos or, more traditionally, convincing an investor to provide you with seed money to jumpstart your business.
In this article we’re going to take a closer look at the foundations of tax planning, with a special focus on HNWIs currently dealing with the multifaceted tax landscape in the UK. All this while maximising financial growth and keeping liabilities to a bare minimum of course. By adopting an intelligent financial management system with the help of tax experts, HNWIs are able to navigate through these elaborate financial environments with ease. Here’s an overview.
HNWI Tax Challenges
HNWIs generally present a varied portfolio of assets, which require careful consideration both individually as well as part of a whole. For this reason, hiring a tax planner you’re able to trust blindly is the first supreme challenge. Once that’s out of the way, here are another couple of elements to consider:
Estate Tax
Whenever wealth is passed on to the next generation, there’s always the chance of triggering considerable liabilities related to inheritance tax in the UK. For this reason, it’s always recommended that HNWIs create strategies focused preserving their legacy while also reducing the impact of this tax.
Higher Liabilities
When faced with capital gains and income tax rates, several times HNWIs face higher rates than your average person, which means that they’re going to require additional expertise in order to manage these efficiently while maximising growth and income potential at the same time.
Global Income
If your business has spread outside the UK’s shores, then this could bring several new challenges to the table such as the issue of double taxation for example.
Varied Portfolios
Whenever HNWIs are concerned, there’s also always the chance that their portfolio of assets is wide and varied. These could include anything from real estate to stocks and other investments, with each asset carrying several tax implications of its own.
Key Tax Elements for HNWIs to Consider
When looking at the greater scheme of things, preserving and building wealth, and fostering growth is always going to be a priority to HNWIs. In this case, you’re always going to want to go for a solid mix between tax-efficient instruments and some really sound, strategic planning.
Trust Funds
Trusts are legal structures that allow the transference of assets to a particular trustee, who in turn can hold and manage those assets for the gain of particular organisations or individuals. There are several reasons why HNWIs choose to establish trusts, which could include:
Control and Succession
The establishment of trusts allows you to control the way your assets are distributed and managed even after your passing. This is particularly useful if there are any concerns regarding the way beneficiaries might handle finances, or if you’d like to guarantee that your wealth is directed towards specific purposes such as a charity, even after you’re gone.
Protection
Trusts will also allow you to protect you from potential lawsuits, creditors, and other financial mishaps. By safeguarding your assets within the trust, they are automatically classified in a separate category from a financial perspective, making them harder to access via legal routes.
Privacy
Trusts also offer an enhanced degree of privacy since it is the trustee that holds ownership, while there is no need to disclose any other information publicly.
Inheritance
Another popular reason for establishing a trust is to potentially minimise inheritance tax dues.
Insurance
Insurance, especially that for HNWIs, is a particular type of insurance that’s been tailored to the needs and complex insurance requirements of individuals that come with extensive assets. This sort of high-net-worth insurance plan will generally extend beyond traditional offerings, providing bespoke protection covers for high value homes and vehicles, as well as antiques, jewellery, fine art, and other relevant assets that might require an additional level of coverage.
Liabilities are also another element to consider, with HNWIs often faced with higher risks. In this case, these insurance plans can offer significantly increased coverage limits in order to protect the individual against any legal claims or lawsuits.
Asset Diversification
A well-structured and diversified portfolio could potentially minimise your risk while also creating protection against market volatility. By allocating your funds across various types of assets such as stocks, bonds, cash, or real estate for example, you’re given the peace of mind in knowing that if one ship goes down the others will remain afloat.
Fluctuations in the market could also potentially impact your assets over time, which is why it’s so important to always keeping this balanced. This not only allows you to maintain your original investment strategy but will also help you keep on track of what’s going on regardless of any spikes or dips in the market.
Conclusion
When it comes to HNWIs in the UK, tax planning needs to be as comprehensive as it is proactive. By carefully selecting the right balance between trusts, efficient tax planning, benefitting from any tax relief schemes, while also keeping inheritance and capital gains tax into consideration, there are several ways and means one’s able to improve and safeguard their wealth for the long haul – but first, coffee.
