Pandemic has changed migration trends of the wealthy

The desire to migrate to different parts of the world is not new, but the drivers have certainly changed over time.

Most recently, the covid-19 pandemic has been more debilitating and has endured longer than most expected. From the perspective of international families, a great number of plans were thwarted as inertia set in, caused partly by a wait-and-see attitude and partly by governments forcing people in different directions – but they are generally staying put, writes Paul Roper, director at VG.

As an example, the UK international migration statistics are normally underpinned by the International Passenger Survey (IPS).

The impact of the pandemic resulted in the suspension of the IPS on 16 March 2020. This led to the need to consider all available sources to understand international migration.

Issues that may play a role in migration

Wealthy families are impacted in the same way as the broader spectrum of society. The primary reason is that they cannot see a future in their current jurisdiction; this may vary from escaping current or future conflict or persecution, poverty, or high standards of living – albeit less so for those in the upper echelons of wealth.

For wealthier families, tax may be just one of many factors, but this is rarely the driver for emigration per se. Families are prepared to pay their share of taxes but expect to see their payments are being used sensibly by the government recipient of those taxes.

Softer issues such as business opportunities, educational or ensuring the family stays together may play a role in a family’s decision to migrate.

Living in a country where the political and socio-economic environment is unstable and unpredictable, can be detrimental to both the parents and the children.

Emigration does not happen in a vacuum. There are countries that encourage families of substance to move there, through favourable tax dispensations, or offering other incentives to attract the wealthy, whether in terms of visas, citizenship through investment, forming a business or the family making some other contribution to the new jurisdiction.

These are invariably marketed in a very attractive package; and some families have been caught off-guard by the actual realities.

Which jurisdictions are seeing outflows and why?

There is a major flow of people from Africa to Europe. This is evident in the numbers of migrants arriving in countries like France, Greece and the United Kingdom.

Often, they leave due to opportunities drying up in their countries, or there are civil wars, famine, reducing employment opportunities as well as climate issues. It has been said that the focus on black gold (oil) will shift to become the focus on blue gold (water) in the future.

The wealthy in Africa are not immune to these issues and they will also migrate elsewhere to ensure that their children have the best opportunities.

In South Africa, for example, according to New World Wealth’s 2020 SA Wealth Report, there are approximately 38,400 millionaires or high-net-worth individuals (HNWIs) living in South Africa. In 2010, this figure stood at 48,600 HNWIs. HNWIs represent less than 1% of the South African population and that number is reducing.

South Africa is not unique in this but some of the issues causing people to leave include huge unemployment issues, running at around two-thirds in terms of the younger generation, sovereign downgrades by the rating agencies, the value of the Rand and issues around crime and sustainability of the country into the future.

The UK, meanwhile, has seen around one million people leave since 2020 owing to a combination of brexit and covid-related issues.

It is a cycle and countries must consider how to attract people, particularly the wealthy, to their shores. Some are more adept and willing to offer incentives to attracting wealthy families than others.

The ability to negotiate investor and other visas, passport programmes and favourable tax structures and rates may well serve to entice wealthy families to those countries, particularly if the families are able to create new businesses and are able to educate the next generation on the same bases.

Catalysts causing inflows

For immigration, the perceived attractiveness and size of the country play a role. The smaller the country, the higher its probable proportion of foreign-born residents.

Conversely, the larger the country, the smaller this proportion. As an example, in 2017, Switzerland’s population was made up of 29% immigrants, for Luxembourg it was 46%, comparing with 15% for the US, for example.

Jersey should be considered within the mix of target jurisdictions, not only for setting up trusts and companies but by possible immigrants to the island. There is a plethora of advantages to be gained from living and working in Jersey, given its independence from the UK and its proximity to Europe, without necessarily being part of the EU.

There is also the quality of life and fiscal autonomy to be considered. If wealthy families are spread across jurisdictions, it helps to be in one so centrally located to the rest of the world with ease of access to large business centres and education through some of the most highly regarded universities globally.

Tax changes resulting in UK-based individuals seeking to move abroad

The OECD’s International Migration Outlook for 2021 reflects that there is a net inflow of people into the UK – meaning more immigrants than emigrants.

But of those emigrating, why are they leaving and where are they going? Some 40% of emigrants are going to Spain, Australia and the United States. The reasons cited for departure include lifestyle, work, and other opportunities. What statistics have shown is that tax generally plays a small role in people’s reasons for leaving a country.

Would a wealthy family leave a country because of a perceived harsh tax dispensation? Capital gains tax (CGT) and inheritance tax (IHT) in the UK would hardly be considered punitive as most other major onshore countries have similar types of arrangements and tax dispensations.

In addition, as already stated, research across a range of jurisdictions has shown that people do not leave because of tax.

Balancing lifestyle and financial benefits

As taxes in someone’s current jurisdiction do not appear to be a catalyst to depart, when other jurisdictions make it easier to move, the combination of these two factors may cause a relocation.

The UK, for example still has its, somewhat diluted, domicile regime, which is attractive for the first 15 years and CGT and IHT may be avoided to a large extent.

Most of the Middle East does not levy taxes, Portugal, Spain, Canada and Israel all offer incentives of up to 10-years tax holidays to new arrivals.

Yet others like Switzerland, Jersey, Guernsey, the Isle of Man and the Caribbean offer incentives for people to settle.

Current trends

The major exodus of wealthy families from South Africa has been catalysed by several different factors, not least the economy, the state of the currency, the recent riots and issues with electricity and water supplies.

To a lesser extent, this is also true of the UK with Brexit and recent property taxes and increases in the corporate tax rate.

On the flip side, there are certain other countries being opportunistic, for example Portugal with its Golden Visa Programme, Israel has a 10-year domicile tax regime and the Middle East with no tax.

For South Africans, the neighbouring states are enticing them – there are special economic zones in Botswana and Namibia. In addition, Eswatini has dropped its corporate tax rate to 12%. The majority of South Africans are moving to the UK, Australia, the US, Canada and New Zealand.

Covid has turned the world on its head and tapping into migration trends and effectively assisting families in moving across the globe is key. When families move, it is easier to establish key contacts and relationships to assist future families with their moves.

This has certainly been true for VG’s clients, particularly in the case of the UK, the US and the Middle East. Fortunately, these skills are transferrable and new trends are being established all the time.

Indeed, families are even choosing to love Jersey as a place to call “home”, rather than simply establishing their trusts and/or companies there.

SOURCE: International Adviser


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