As we approach 2023, the issue of tax is in full focus.
With four individuals holding the title of chancellor of the exchequer in as many months during 2022, high net worth individuals might be forgiven for losing track of where the UK stands on tax policy. But with economic downturn upon us, their advisers must be more vigilant than ever. Sage advice has never been more critical.
The combination of economic woe and a cost of living crisis has left the government needing to fill a depleted treasury.
Infinite Global research has shown that media and stakeholder interest in taxation inversely correlates to the economic health of a nation. This is therefore a perfect storm for significant public and media scrutiny of corporate and private client tax behaviour and changing attitudes to wealth and the wealthy.
Against this backdrop, private client advisers must help HNWIs to tread carefully, aiding them to meet not only their fiscal obligations, but increasingly their reputational (and arguably moral) responsibilities too.
Look back at recent years to see how once strong reputations have been questioned, challenged, and damaged by the adoption of tax strategies that, while within the law, have contravened stakeholder expectations and generated significant negative media attention.
While retaining the best interests of their clients, private wealth advisers must not be tone deaf to what is going on in the wider world. As we enter a heightened period of focus on concepts such as ‘paying a fair share’, the critical relationship between tax strategy and reputation must not be overlooked.
Operating within the letter of the law may therefore be insufficient – its spirit must also be acknowledged. This is, of course, a somewhat ambiguous situation. Dangerous territory lies ahead, as taxation shifts from being the preserve of technical experts and into the mainstream consciousness.
Perceived abuse is not tolerated, as headlines and political rhetoric sharpen against those found lacking, while misunderstanding can easily take hold to further complicate things.
Tax ‘fairness’ is not a clearly defined term, but it is nonetheless a standard against which taxpayers may be measured.
Having a clear position, and being able to explain and justify it, is crucial. Private clients may be tempted to sit back and stay silent, but advisers must caution against adopting a purely reactive approach. Misperception can quickly become deeply embedded, and authority aggression will likely increase as economic hardship continues.
If an approach can be justified, justify it, in an easy-to-understand way. If it cannot, the approach may need to change if HNWIs wish to avoid being scapegoated.