There was an overall rise in relocation enquiries in 2020, prompted by the COVID-19 pandemic, various governments' reactions to the pandemic, concerns over the costs of governments' reactions, and the impact on individual economies. Looking forward in 2021, what impact will the year the world has just experienced together have on HNW relocation and mobility? Together with David Conway, Associate Director in the Private Client team at Buzzacott, we've reached out to a network of experts for their insight and projections.
International residence and citizenship planning firm Henley & Partners reported that, in the nine months to September 2020, they had experienced a near 50% rise in the number of HNW individuals seeking advice on relocating to another country. Globally, enquiries to the firm rose by 25% over the course of the year. In most years, the bulk of the firm's enquiries come from emerging markets like India, South Africa, Bangladesh, Pakistan, and Nigeria. In 2020, it was different. Although India remained the firm's busiest market, its second busiest market was the US market (235% rise in enquiries), its sixth busiest Britain (38% rise), and its eighth busiest Canada (74% rise).
Of course, the factors behind an HNW individual's decision to relocate varies depending on their country of birth. For example, in 2020, American HNWIs were especially motivated to enquire about relocation because of worries over the general political climate, tax rate hikes if Joe Biden was elected President, and widespread civil protests following the death of George Floyd. British enquirers were particularly concerned about the then unknown effect of Brexit as the deadline for a trade deal was pushed back time and time again.
The COVID-19 pandemic also prompted many people to change carefully developed plans to relocate in 2020. Tom Hogarth, Wealth Planner at Cazenove Capital says that they "have seen instances where individuals were planning to leave the UK last year for a sustained period of time, either for work or personal reasons, who had their plans put on hold given the restrictions brought about by the pandemic. A number of these individuals will have undertaken planning beforehand following discussions with their various trusted advisers and at times, where deemed appropriate, restructured their assets and investments accordingly so that they were more aligned with their future plans and the jurisdictions where they planned to reside."
Countries seeking to attract HNWIs to live in and invest in their countries will offer one or both of the following schemes - citizenship by investment and residence by investment.
According to the OECD, there are over 100 schemes of these types in existence with varying levels of financial risk to a would-be relocator depending on the economic transparency of the jurisdictions offering them. 19 of the G20 nations have specific programmes to appeal to HNWIs, UHNWIs, and other high earners whose skills are particularly sought by individual nations.
Residency by investment programmes provide HNW individuals with the right to reside in a particular country without being required to actually live there. They're popular among investors who don't want to move themselves and their families abroad but who want the option of living in that country just in case.
The list of countries offering residency by investment programmes includes Canada, Cyprus, Greece, Malta, New Zealand, Portugal, Singapore, Spain, Switzerland, the United Kingdom, and the United States of America.
Citizenship by investment programmes grant (sometimes immediate) citizenship to individuals and their families. As citizens, they and their families then qualify for a second passport and they enjoy all the rights and responsibilities of citizens born in the country. Perhaps the most famous example of such a programme is in Cyprus where, for an investment of €2,150,000, you can be granted citizenship after just six months.
Countries offering citizenship by investment programmes include the United Kingdom, Malta, Bulgaria, Montenegro, Turkey, Grenada, Dominica, Antigua and Barbuda, Saint Kitts & Nevis, and Vanuatu.
For countries not offering a citizenship-by-investment programme, you would first apply for the residency-by-investment programme. In many of these countries, this involves making an initial investment, living in the country for a specified period of time to be granted permanent residence, and then continuing to reside there for long enough to apply for citizenship.
For example, in Switzerland, you have to either form a company employing Swiss nationals or pay an annual tax of between CHF 150,000 and CHF 1 million to apply for residence. Then you have a wait of 12 years before you can finally apply for citizenship. The path to citizenship from residence varies from country to country.
Since the outbreak of COVID-19, the number of HNWIs enquiring about citizenship-by-investment as opposed to residence-by-investment programmes has increased by 25%.
According to Andres Gutierrez, an investment immigration consultant with CSB Group in Malta speaking to Mansion Global, "clients are diversifying...in a pandemic, clients have realised that [citizenship by investment regulations] gives an edge against geopolitical risk and volatility. They want investment stability, they want options for their children."
HNW relocation, sometimes called investment migration, offers "value to both investors and their families and (to) sovereign states and their citizens…investment migration is now a standard consideration for international HNWIs who are looking to hedge volatility, create short term value as well as long term yield through enhanced global mobility", according to Dr. Juerg Steffen, CEO of Henley & Partners in an interview with the Investment Migration Council. Dr. Steffen states that "alternative residence and citizenship encompass portfolio diversification, global investment and operations, and the creation of a new inheritance and identity for the family."
So, in 2021, what will the prime motivations behind HNW relocation be? Many of them will remain just as before.
Tax is an ongoing factor which is why a key part of the Cayman Islands' pitch to HNW individuals is its taxation system. James O'Brien, Sales & Investment Consultant at IRG, told us that "Cayman is a favourable location for High-Net-Worth Individuals for a multitude of reasons, including a myriad of very attractive lifestyle attributes, but one considerable reason is the tax benefits. Cayman is a tax-neutral jurisdiction that allows companies to operate without local Corporate Tax, Income Tax, Payroll Tax, or Sales Tax. For residents, this also means no Property or Capital Gains tax. These concessions make operating from Cayman an enticing option".
International mobility is particularly important. For HNW individuals investing in citizenship in Malta for example, their passports will give them access to 174 countries (including passport free travel across the EU Schengen Zone). In contrast, a Pakistani HWNI and passport holder only has visa free access to 32 countries around the world. A second passport means a much greater freedom to travel.
Monaco and many of the most popular HNW relocation destinations are transport hubs or very close to transport hubs - for example, Monaco is a 7-minute helicopter ride away from Nice Airport.
A connectedness to the rest of the world also offers HNW individuals business opportunities and opportunities to network with like-minded people. In the way we think of Silicon Valley as a hub for technological innovation, the cities and countries to which HNWIs relocate create investment hubs which benefit the host nation and beyond.
To benefit the host nation, it needs to offer relocating HNWIs political stability. On that point, Christopher Fisher, Middle East Director and Relationship Manager at Standard Chartered Private Bank, stated that "with the tragic explosion in Beirut this summer, the ongoing banking crisis there combined with the COVID-19 pandemic, we have seen an increase in clients from Lebanon seeking safety and stability by moving to the UK".
Safety and security are also paramount concerns of relocators - no-one would want to move to a country where they or their family members feel unsafe walking the street or feel that their property and assets are under threat.
Related to safety and security is also quality of life - climate, health systems, schools, transport infrastructure, and so on.
However what will be different in 2021 is that HNWIs interested in relocating will also be influenced by the perception of how individual governments are handling the COVID-19 pandemic.
According to John Arlidge at the Robb Robert, "the most popular "pandemic passports" or permanent residency programs are those of Australia, Antigua, St Kitts and Nevis, Tuvalu, Vanuatu, Austria, Switzerland, Portugal, Cyprus, Malta and Montenegro."
He noted that Austria and Australia were popular with HNW individuals but that the United Kingdom is not currently "considered a safe haven because critics say the government botched its handling of the pandemic by reacting too slowly to the threat and failing to ensure the National Health Service was properly prepared."
On the subject of COVID-19, James O'Brien at IRG stated that "under the [Cayman Islands Global Citizen Certificate] scheme, you and your family could relocate to the COVID-free Cayman Islands for up to 2 years whilst working remotely".
Kevin Lemasney, Director of High Value Residency at Locate Jersey, told us that "Jersey continues to receive a steady stream of enquiries for Residency from HNWIs and UHNWs residing in the UK. Those who moved here recently have been impressed with the community spirit and how the Island has managed the COVID pandemic. Remote working has not been a problem as every business and home has fibre cable to the door - something that we take for granted but is the envy of many other jurisdictions."
Despite the need for governments to pay for the borrowing incurred during the COVID-19 pandemic, many market observers believe that finance ministers will keep their powder dry for fear of causing HNW flight.
Rakesh Dabasia, Director in the Private Client team at Buzzacott, told us that "There is no doubt that Rishi Sunak (the UK finance minister) will have to raise taxes in the future to pay for the COVID-19 support measures and he has already started that process by announcing large, future increases to corporation tax in his March 2021 Budget. However, Rishi has a fine balancing act to consider as countries around the world all try to encourage inward investment to grab their share of tax revenues. We are already seeing entrepreneurs considering going non-UK resident with the reduction in entrepreneurs' relief and the prospect of an increased capital gains tax rate to align with income tax rates, which is still not out of the question despite not being mentioned in his recent Budget."
The UK will be competing for HNW individuals with the governments of other countries which have their own COVID-related funding problems. Dr. Christian Kalin, chairman of Henley & Partners, offered Antigua by way of example in an interview with the Robb Report. Speaking to the publication he said that "it depends on tourism and now there is none and there won't be for some time. It needs fresh sources of funds. Citizenship by investment is one."
The ongoing pandemic and the travel restriction it placed on us all resulted in particular difficulties for HNW individuals.
Struan Mackenzie, Partner, and Paul Baker, Associate Director, in the Expatriate Tax Services team at Buzzacott stated that "individuals who are not US citizens and Green Card holders can be subject to US taxation if they are resident for US tax purposes". Frequent US business travellers who found themselves stuck in the USA could have been at a serious disadvantage had it not been for their companies and advisors applying for a "COVID-19 Medical Travel Exception" which "allowed eligible individuals to exclude up to 60 days of US presence in 2020 for determining their residency position under the Substantial Presence Test.
David Conway, Associate Director in Buzzacott's Private Client team, reported similar issues affecting the UK. HMRC, the tax collection authority in the country, established an exceptional circumstances test for employees. Despite that, David and his team had to work with "individuals unexpectedly classed as UK resident for 2020/21" which had a "knock-on effect on the residence position of previously offshore trusts, where the individuals in question are Trustees of those trusts".
As COVID travel restrictions ease, the world will remember how mobile it is and begin once again to take advantage of it. HNW individuals seeking relocation and extra mobility for their families will be no different.
David Conway of Buzzacott LLP stated that "while the pandemic may have limited our ability to travel throughout 2020, the desire for internationally mobile high-net worth individuals to do business and travel around the world has certainly not been dampened, and we expect to see a renewed pick-up on this once the vaccine hopefully starts to allow us to lead more normal lives in 2021."
During the pandemic, relocation advisors as well as the other professionals they rely on proved their value. As Olly Spry, Director of Private Banking at EFG Private Bank, told us, "globally mobile individuals who have complicated, multi-jurisdictional asset bases require sophisticated levels of advice. Individuals trying to manage the work/life balance and further advances in technology will enable them to have more choice on jurisdictions where they would like to reside in future."
As we've seen through the course of the pandemic particularly with individuals who have been stuck in countries because of travel restrictions, the role played by relocation advisors as well as accountants, tax experts, and solicitors after you've relocated is just as important after the move than before. In 2021 after things return to normal, they are likely to find themselves busier than they've ever been before.
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