Will Sweeney – Tax Technical Specialist
For investors in the UK’s Crown Dependencies, it has been a turbulent time. With EU-UK trade negotiations starting, political uncertainty has been greater than ever, and there has been a growing global push for better transparency around managed investments in offshore financial centres. This unsteadiness has persuaded high-net-worth investors to review their options and take a step back. Is now a good time to consider moving their investments?
Who is effected?
Investors abroad with more than £500bn in assets at the moment choose to hold them in the Crown Dependencies of the Channel Islands and Isle of Man. This is due to the islands’ specialist financial industries, a stable fiscal environment and well-managed regulatory procedures. Benefits of this include providing much-needed liquidity, supporting an estimated 250,000 jobs and channelling inward investment into mainland businesses.
But, increasing political pressure to introduce more transparency through the integration of a public register which shows advantageous ownership, might distract people’s money and interest away from the Crown Dependencies favour of countries which haven’t yet announced an intent to have a UBO register, like Switzerland.
This year in June, the Crown Dependencies answered to continued political pressure by promising to roll out 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. Whilst full details are yet to be disclosed, in the UK, personal information about individuals exercising significant control over a UK company can be sought-out free of charge from Companies House. These changes could lead to the Channel Islands adopting a similar model.
Financial scandals in other areas of the world, like the Panama papers, have led majority of wealth managers to think that the perception of the Crown dependencies has been unfairly impacted by financial scandals around the world. Even so the Crown Dependencies operate in a recognised, well-regulated environment where information about beneficial ownership is shared amongst tax authorities in the UK, EU and globally, they have had little choice but to act.
While such openness might cause for concern, investors must avoid over-reacting. Recently, an assessment by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) positioned Jersey and Guernsey in the top tier of international financial centres in terms of their regulatory controls and procedures. This track record of robust management makes the Crown Dependencies still a safe option for international investors, providing steps taken to increase transparency will be dealt with accordingly.
Industry onlookers may marvel over why the Crown Dependencies are holding out till 2023 before they introduce public registers. However, this does make sense when considering that islands aren’t part of the UK, but are self-governing dependencies of the crown, with their own legislative assemblies, courts and tax systems. Promotion of the use of public registers as a global standard has been repeatedly proposed by the government, ideally by 2023, and would expect the Crown Dependencies to adopt public registers in line with such changes.
Even with the continuing uncertainty for international investors, the general election in the UK has given some comfort as it implies the Government won’t be ready to force the Crown Dependencies to take the lead on the topic of transparency.
From EU-UK trade negotiations starting through to the introduction of public registers from 2023, there are other options for investors who are still concerned about the prospect of further changes in the Crown Dependencies. European jurisdictions such as Portugal, Italy or Switzerland offer comparative stability, scenic locations and have introduced a variety of favourable fiscal policies for ‘non-habitual’ residents, which might be enticing to some investors. For more internationally-mobile investors, locations in the Middle East may also be appealing. Although culture, language and living costs may all present bumps along the road. It’s a good idea 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.
Plan against snap decisions
International investors should be wary of making snap decisions and look at the planned changes as an opportunity to re-consider their offshore connections. International financial centres around the world will be forced to respond in time and calls for more disclosure about offshore investments will build momentum. It may make sense for investors to leave their money where it is if they can accept that changes are inevitable. Especially if they are safe in the knowledge that when information is published, it will be managed in a safe and controlled fashion.