As family office taxes become increasingly complex due to global volatility, it’s essential to stay on top of tax planning. We take a look at some of the critical tax areas. This includes Corporation, Personal, Income, Inheritance, Capital Gains, Green, Social, and Wealth Taxes. We’ll discuss how family offices can manage their current and future tax exposure in a rapidly changing tax environment.
Governments worldwide accrued massive debt loads due to the pandemic, and they eventually need to find ways to recover. As quantitative easing shifted to monetary and fiscal tightening, countries are beginning to focus on reducing deficits. And this will done through spending cuts and tax increases.
Family offices need to navigate this complex landscape, considering the global mobility of their founders and key family members. Across the UK, US, and in Europe debates about taxes, fairness, and the need for governments to raise revenue grow.
Corporation Tax
Corporation tax is a hot topic and the OECD has pushed for common and global agreement that multinationals pay their fair share. The UK is increasing its corporation tax from 19% to 25% in April 2023, even for companies managing family investments. With the global average corporate tax rate at 23.85%, the UK however remains competitive.
Transparency and Compliance
OECD initiatives, along with global efforts like CRS and FATCA, emphasize the importance of transparency and compliance. Family offices must ensure their wealth management structures remain compliant and align with the next generation’s vision and values.
Personal Taxation
As governments shift from supporting businesses and households during the pandemic, tax policy reforms and increases are expected. Income tax rates vary significantly between jurisdictions, with some applying rates close to 56% and others as low as 0%. Policy makers must balance the need for revenue with the perception of tax fairness and the global mobility of wealthy residents.
Estate and Inheritance Taxes
Family offices often focus on succession planning, with concerns about the taxation of beneficiaries and the appropriateness of wealth management structures. Estate and inheritance tax rates also vary greatly between jurisdictions, with some charging up to 60%. Regular reviews and updates of arrangements are advisable for family offices.
Capital Gains Tax
Different jurisdictions treat short-term gains and tax rates differently. In countries like the UK, where there’s a significant disparity between income tax (45 per cent) and capital gains tax rates (20 per cent), the latter could be an easy target for tax increases. We believe family offices will increasingly use fund structures to defer capital gains taxes and manage their tax more efficiently).
Green Taxes
Green taxes, such as carbon taxes, are an emerging area to watch as governments strive to address the climate crisis. These taxes may become a significant revenue source and impact family office taxes as they seek to invest in environmentally friendly ventures.
Social Taxes
Governments are increasingly introducing social taxes, like the UK’s new health and social care levy, to fund essential public services. Family offices need to consider the potential impact of these taxes on their overall tax planning strategy.
Wealth Taxes
As governments look for ways to address inequality and fund public investments, wealth taxes targeting high earners, wealthy households, or large corporations may become more prevalent. Family offices should be prepared for potential changes in wealth tax policies across different jurisdictions.
Competitive Landscape
Countries are introducing special tax regimes to attract wealthy individuals, like Italy and Greece’s favourable tax policies for those relocating. The UK’s remittance basis of taxation is expected to remain in place, but family offices should monitor these competitive tax landscapes to optimize their global tax strategies.
Preparing for the Future
In an ever-changing global tax environment, family offices must stay informed and adapt their tax planning strategies accordingly. Governments worldwide continue to grapple with the economic fallout of the pandemic and look to fund essential public services and investments. It’s therefore crucial for family offices to remain proactive in managing their tax exposure.
In conclusion, navigating family office taxes in today’s volatile landscape requires vigilance, flexibility, and a keen understanding of the global tax environment. By staying informed and reviewing their tax strategies, family offices can successfully protect their wealth for generations to come.