Seeking a more stable tax haven?

William Sweeney, senior manager in the tax technical team at accountancy firm, Menzies LLP, discusses options for international investors.

Relocate Editorial

19 December 2019

It has been a turbulent time for investors in the UK’s Crown Dependencies, with Brexit, political uncertainty and a growing global push for greater transparency surrounding managed investments in offshore financial centres. This instability has encouraged some high-net-worth investors to look around and review their options. But should they consider moving their investments now?International investors with assets of more than £500 billion currently choose to hold them in the Crown Dependencies of the Channel Islands and Isle of Man, attracted by the islands’ specialist financial industries, well-managed regulatory procedures and a stable fiscal environment. This provides vital benefits to the UK, channelling inward investment into mainland businesses, providing much-needed liquidity and supporting an estimated 250,000 jobs.However, mounting political pressure to introduce greater transparency through the introduction of a public register showing beneficial ownership, could divert people’s interest and money away from the Crown Dependencies in favour of countries that have not yet announced an intention to have a UBO register, such as Switzerland.

Crown Dependencies public register set for 2023

In June this year, the Crown Dependencies responded to continued political pressure by pledging to introduce a public register of beneficial ownership of all the offshore companies held in their jurisdiction by 2023, as part of an EU-wide drive to stamp out global financial crime. While full details are yet to be provided, in the UK, personal information about individuals exercising significant control over a UK company can be accessed free of charge from Companies House. These changes could see the Channel Islands adopting a similar model.Many wealth managers believe that the perception of the Crown Dependencies has been unfairly impacted by financial scandals in other areas of the world, such as the Panama Papers. Despite operating in an established, well-regulated environment in which information about beneficial ownership is shared freely with tax authorities in the UK and the EU, and indeed globally, the Crown Dependencies have had little option but to take action. While such transparency could be cause for concern, investors should avoid reacting in a knee-jerk way. A recent assessment by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) placed Jersey and Guernsey in the top tier of international financial centres in terms of their regulatory controls and procedures. With this track record of robust management, the Crown Dependencies remains a safe option for international investors, if only for the reason that any steps taken to increase transparency in the future will be handled with considerable care and attention.

Why the wait?

Some industry onlookers may wonder why the Crown Dependencies are waiting until 2023 before introducing public registers. This position makes complete sense, however, when considering that the islands are not part of the UK, but are self-governing dependencies of the crown, with their own legislative assemblies, tax systems and courts. The UK Government has stated repeatedly that it intends to promote the use of public registers as a global standard, ideally by 2023, and would expect the Crown Dependencies to adopt public registers in line with such changes.Despite the ongoing climate of uncertainty for international investors, the outcome of the General Election in the UK has provided some reassurance, as it suggests the Government will not be willing to force the Crown Dependencies to take the lead on the issue of transparency.

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For investors who remain concerned about the prospect of further changes in the Crown Dependencies, from Brexit through to the introduction of public registers from 2023, there are other options. European jurisdictions such as Switzerland, Italy or Portugal offer scenic locations, comparative stability and have introduced a range of favourable fiscal policies for ‘non-habitual’ residents, which could be attractive to some investors.While for more internationally-mobile investors, destinations in the Middle East may also appeal. However, language, culture and living costs may all present significant barriers. It is important to weigh up the pros and cons before shifting investments and investors should seek advice from wealth managers with access to global knowledge and expertise.In summary, international investors should avoid making any snap decisions and view the proposed changes as an opportunity to re-evaluate their offshore connections. Calls for greater disclosure surrounding offshore investments will continue to gather momentum and international financial centres around the world will be forced to respond in time. If investors in the Crown Dependencies can accept that changes are inevitable, then it may make sense to leave their money where it is – safe in the knowledge that when information is published, it will be managed in a safe and controlled fashion.

About the author

William Sweeney, senior manager in the tax technical team at accountancy firm, Menzies LLP. MENZIES is a top 20 firm of accountants, finance and business, and private client advisors that operate out of a network of offices across Surrey, Hampshire, London and Cardiff, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, MENZIES has more than 400 employees and an annual turnover of more than £40 million.