The ultimate guide to HNW law

High net worth individuals can require advice on a range of complex legal issues and challenges in relation to various factors across multiple legal and financial areas. This will generally include financial planning for taxation and property matters, as well as issues relating to relocation, changes in relationships such as marriages and divorce and privacy and reputation matters. Other matters that are important to consider for financial planning for HNW individuals is ensuring they have Wills and Powers of Attorney in place as well as ensuring they are making the most of their pensions and saving opportunities to maximise tax efficiency.

Property 

High value property sales and purchases are understandably complex and often involve various legal areas. The use of different legal structures, such as trusts, are more likely to be used by HNW individuals. Trusts are used for various reason and can be used to pass assets to other individuals or to protect an asset. 

There are no restrictions on overseas investors acquiring property in the UK, which can be purchased, rented or leased for the individuals own use or as an investment. Property can be owned either: 

• Freehold, which grants the owner absolute ownership 
• Leasehold, which grants the owner a right of possession for a fixed term 

Stamp duty land tax is charged on all land and property sales in the UK. There are different rates and thresholds that are applicable ranging from 0-4%. Other taxes that can apply include: 

• VAT 

• Capital gains tax  

• Corporation tax  

• Annual tax on enveloped dwellings (ATED) 

Any development of land or material change in its use will require planning permission from the local planning authority.

Wills and Powers of Attorney 

Wills need to be very carefully planned for HNW individuals to ensure that they will cover the wishes of the deceased as well as providing for their families.  

It is also really important to ensure that HWW individuals have valid lasting power of attorney (LPA) in place for financial and medical matters that will allow a person of their choice to make decisions on their behalf if they are unable to. Often people think that relatives can do this automatically but this is generally not the case and can result in lengthy and costly court wishes for those that need to gain the right to these decisions where an LPA is not in place.

Tax 

A major part of financial planning for HNW individuals is ensuring that they are being as tax-efficient as possible. Higher taxes are payable by those on higher incomes that affect capital gains and dividend income. Ensuring that there is a robust tax strategy can ensure that all tax planning allowances and exemptions are used to enhance the overall efficiency of a HNW individual’s portfolio. 

For some HNW individuals, it may be worth considering a family investment company to be used for succession planning.

Individual savings accounts (ISAs) 

Those residing in the UK can invest up to £20,000 a year into ISAs, which are income and capital gains tax free. Parents can invest on behalf of their children up to £9,000. Whatever level of wealth an individual has, it is always recommended to make the most of these tax-free savings mechanisms.

Pensions 

Pensions are very useful tools in relation to tax minimisation since the individual will receive income tax relief at the marginal rate of income tax on their contributions made up to the prevailing limit. Any income and capital gains that result from the pension fund accumulate tax free and the funds are generally free from inheritance tax.

Inheritance tax 

Good financial planning should minimise the impact of inheritance tax, which applies to the value of a person’s assets when they die. There is currently an allowance of £325,000 per person or £650,000 for a married couple and anything above this is taxed at a flat rate of 40% on all assets worldwide. 

There are various exemptions meaning that no IHT is owed, such as: 

• Spousal exemption- no tax is payable on assets passing between a married couple or those in a civil partnership 

• Business property relief for businesses that are acting as a trading company 

• Agricultural property relief for farmland and associated property 

• Charities- no tax on gifts left to charities and if you leave more than 20% of your estate to charity then the tax on the rest is reduced to 36% 

• Heritage relief for items of historic or architectural importance that are left to the nation 

Capital gains tax 

Capital gains tax is payable when an asset is disposed of that has increased in value. There is a tax-free exemption for CGT and then there is a tax of varying rates. Those that are married or in a civil partnership can double the CGT exemption that is available. Previous loses that arose when disposing of an asset can be used to offset future capital gains so long as they are claimed with four years after the tax year when the loss occurred. 

Privacy and Reputation 

Concerns about privacy and reputation, which are very important personal assets, particularly for high net worth individuals, that can be difficult to quantify. This is even more relevant for those that derive substantial income from their reputation. There are a range of issues that can arise in this area and require specialist support: 

• Defamation issues 

• Data protection right 

• Dealing with unwanted press attention 

• Harassment and blackmail 

• Complaints in relation to the media