24 四月 2020

Private wealth: COVID-19 - What's keeping you up at night?

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Nick Warr

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Ronald Graham

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Christophe Flaicher

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Martin Kraus

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Marc van Gelder

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Dr. Georg Walderdorff

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Mark Chan

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Jerry Parks

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作者

Nick Warr

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Ronald Graham

合伙人

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Christophe Flaicher

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Martin Kraus

合伙人

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Marc van Gelder

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Dr. Georg Walderdorff

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Mark Chan

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Jerry Parks

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24 四月 2020

Private wealth: COVID-19 - What's keeping you up at night?

  • LONG READ

The outbreak of COVID-19 is significantly impacting the global markets, and consequently clients, on a new and very personal level. More than ever, clients and their families need advice they can trust to guide them through these uncertain times.

Globalisation has, in certain respects, been put on pause. Not only are we witnessing significant and sudden decreases in asset values, individuals’ personal lives have been deeply affected as well. People of the world cannot currently trade or travel freely, and they have been restricted from access to their assets, companies, and even their family members. It is important to stay informed and stay in touch.

This Q&A outlines some of the most pressing investment, business and personal issues that we have been helping our clientswith over the past few weeks. We will continue to update the topics as the situation develops.

Private Client

Things to consider in relation to my personal and estate planning affairs

I have an existing Will, however, should I carry out a ‘health-check’ to ensure that the provisions of my Will remain appropriate?

It is always important to keep the provisions of your Will under review. Your Will should reflect your wishes for your beneficiaries and ensure that these wishes are realised in the most tax-efficient manner. It may be that since you prepared your Will your personal circumstances, including the value and composition of your estate, have evolved. For instance, you may have included appointments of executors, trustees and/or guardians in your existing Will whom you feel would no longer be suitable. Equally, your beneficiaries may be at very different stages and ages, which mean that different considerations are now relevant. You and/or your beneficiaries may be living in different jurisdictions, in which case considerations should be given to these changes from both a legal and tax perspective.

In these unusual and unsettling times, you may also wish to update your letter of wishes to provide your executors and trustees with additional guidance. This document accompanies but is distinct from your Will and helpfully, given the current environment we find ourselves in, there are far fewer formalities required to create or update such letters.

I do not have a Will - how quickly can I put in place new Will arrangements to cover my worldwide assets? What do I need to think about?
With the right guidance, a Will dealing with the devolution of your UK estate can be prepared quickly. If appropriate, and in the first instance, we can work to prioritise putting an interim Will in place, while we review your succession planning arrangements in greater detail. Depending on the nature of assets you hold and their locations, it may be that we can create an English Will dealing with your worldwide assets. However, if this is not appropriate, either from a legal or a practical perspective, we are very experienced at liaising with our overseas colleagues and other advisers to ensure appropriate Wills are prepared in the relevant jurisdictions and that these dovetail with one another. For a Will to be valid, certain execution formalities need to be satisfied. Whilst some countries have introduced temporary legislation to help facilitate the execution of Wills during the present circumstances, no changes are currently proposed for English Wills, which requires the presence of two witnesses. With social distancing in place, certain practical steps will need to be considered – for example, this may involve calling on neighbours to act as witnesses, for instance over garden fences or through windows.

What would happen to me and my assets if I were to lose capacity?

In such circumstances, family members cannot automatically step in to make important decisions and manage affairs on your behalf and would need to apply to court in order to do so. However, in the UK, it is possible to put in place Lasting Powers of Attorney (LPAs), which allow individuals to appoint others, known as attorneys, to make decisions on their behalf. There are two types of LPA, one for property and financial affairs and one for health and welfare. Some jurisdictions will recognise UK LPAs but others will have equivalent arrangements to deal with a loss of capacity. Where clients spend significant time and have material assets overseas, we are experienced in co-ordinating the cross-border issues that arise.

An LPA needs to be registered with the Office of the Public Guardian (OPG) before it can be used. Whilst the OPG has stated that it is currently continuing to process LPA applications within 40 working days, there may be future delays. Certain steps could be taken in the interim, such as a written statement of wishes or advance statements on future affairs.

Is now the time to consider taking steps to transition wealth to family members or structures?

In light of the huge and unprecedented government intervention already announced by so many countries (and more cannot be ruled out depending on how long it takes for economies to recover from the impact of COVID-19) these countries will need to look at how they will raise tax revenue to attempt to balance their books. It is likely that the fiscal regimes in many countries may well be very different in a couple of years, with the introduction of higher tax rates and removal of tax reliefs and exemptions. Therefore, if you are minded to make gifts to family members or transfer wealth to the next generation and beyond, then it may be sensible to start discussions in this regard with your estate planning advisers sooner rather than later to formulate a considered strategy to implement in the months ahead. The fall in value of financial markets may also assist, with potentially reduced taxable gains being realised when making gifts.

Now may be an appropriate time for you to take stock and review your assets and family circumstances with a view to optimising yours and your family’s position, under the current tax regimes. We are experienced in providing co-ordinated and cross-border advice in relation to asset protection and international structuring, succession, inheritance and tax planning, as well as family governance issues.

I have a family asset-holding structure and would like to carry out a ‘health-check’ to understand where it may be possible or advisable to build in some additional safeguards.

I’m a director/shareholder of a family business or other corporate entity – are there any protections I could be putting in place in terms of business continuity and succession?

It is important for families to review the governing documents applicable to their businesses (eg company articles and shareholder agreements) to check what protections or provisions are in place to cater for succession, devolution of assets and loss of capacity. It is usually possible to provide for bespoke arrangements to control succession and ensure continuity in unexpected circumstances. We would recommend that these arrangements are reviewed as part of an overall estate planning exercise, as the issues are often interrelated. For example, an individual shareholder will need to consider the devolution of their share(s) on death and how any powers or privileges held by them are to pass eg board representation. The family may wish to control succession by including, for example, bespoke pre-emption rights in a company’s articles of association to help ensure shares cannot pass outside the family lines.

If a sole or key director were to become incapacitated or fall ill, it will be necessary to consider how decisions will be made in these circumstances. The protections available may range from ensuring the company board is sufficiently diverse to ensuring appropriate measures are in place in the articles of association, shareholders’ agreements or through appropriate business lasting powers of attorney to guard against the risk of incapacity. The solutions are flexible and there may be bespoke arrangements that would suit individual circumstances.
I am the protector of a trust – what would happen if I were to lose capacity or pass away? Is there anything I can do now to provide for smooth succession?

Although every trust structure is different, many will feature a protector whose powers will be important to the overall functioning of the trust. Protector powers vary from providing consent to certain trustee decisions to having positive powers such as the ability to hire and fire trustees. If the protector were to be unable to act (eg through incapacity or death) then the efficient running of the trust may be significantly hampered.

There are a number of ways to provide smooth succession and the available options will depend on the terms of each individual trust deed. For example, some provide for a successor protector to be appointed, in the event of the incapacity or death of the current protector. Similarly, if the protector is appointed by another person (eg an appointor) then succession arrangements can often be put in place. Now may be a good time for clients to review the terms of their trusts to understand what is possible and if successors can be appointed now then to ensure such appointments are completed, so that the trust is able to function as intended with a protector in office at all times.

I am the settlor/principal in relation to various family structures – what would the tax implications be if I were to pass away? Are there any practical protocols that we should put in place now?

Many of our clients have multi-dimensional family structures stretching across multiple jurisdictions. Whenever we look at an individual’s or family’s estate planning affairs and put in place a suitable estate plan or structure, one of the key factors we take into account is the tax and residency status of the settlor or principal and key family members/beneficiaries. This can often be a key driver behind a structure being created one way rather than another and it is not unusual to find that, once the settlor/principal has passed away, changes may be required for the structure to remain effective and/or tax efficient depending on the circumstances of the beneficiaries or others involved in the structure at the relevant time.

Unfortunately, with the uncertain and challenging situation we find ourselves in at present, the ‘what if’ questions will be front of mind for many of our clients. It is always sensible to have thought through these scenarios in advance but now, more than ever, it is important to have a plan in place.

We would recommend that, to the extent that one does not already exist or clients’ circumstances have changed, a protocol is drawn up as to what advice and steps would need to be taken in the event that the settlor/ principal passes away. This may require considering the tax implications for beneficiaries (both living in the UK or abroad) or in respect of the assets held by the structure, as well as reviewing and putting in place succession provisions for any control or decision making powers held by the settlor/ principal. Every family structure will be different, but a clear action plan and awareness of potential issues will be beneficial for all.

How can I ensure the smooth and continuous operation of my family office in these turbulent times? Are there adequate decision-making procedures in place? Is it possible to provide for some overarching family governance guidance?

In these unprecedented times, there are any number of factors which can throw a spanner in the works and prevent the smooth operation of a client’s family office. The issues discussed above in respect of the family principal, and their decision-making and control powers, can equally apply in the context of a family office. In addition, significant domestic or international regulatory changes may be required in the event that the family principal passes away.

As well as the tax, regulatory and legal considerations that need to be assessed in the context of the possible loss of the family principal; it is important to acknowledge the significant role that the family principal often plays in providing the vision and guiding principles which underpin the operation of the family office and its investment philosophy. It may be that the next generation are not yet old enough or involved enough to step into the principal’s shoes in this regard. It will therefore be important to ensure that the client puts in place a suitable framework (whether in the form a guiding mission statement, letter of wishes and / or a family constitution) so as to provide as much clarity and support as possible with regards to the future operation of the family office as well as giving consideration to the creation of a significantly strong and diverse circle of trusted advisers with complementary skills and expertise to support the family as may be required.

The concerns do not only extend to the role of the family principal. There will be other key individuals, roles and business lines within the family office which need to be considered and in respect of which action plans should be put in place to ensure safe and efficient continuity of the family office in the event of unforeseen changes.

I’m going to be spending more time than intended in the UK or another jurisdiction – what does this mean for my tax status? What do I need to think about and are there any steps I should be taking?

For those clients who are internationally mobile and have carefully planned their movements across jurisdictions, the recent disruption may have thrown uncertainty on those plans. As a result, individuals may find themselves in a particular country for longer than anticipated and, so will need to carefully consider the potential implications in respect of their residency and domicile position. In many jurisdictions, the key factor relevant to determine whether an individual is tax resident is the number of days that they spend there each year. This is true in the UK where a detailed statutory test (SRT) exists for determining residency. Individuals are required to carry out a day-counting exercise based on their particular set of facts and circumstances. As a result, individuals are at risk of unintentionally becoming UK tax resident if they find themselves unable to leave the country.

It is important for clients to bear in mind any recent guidance, amendments or postponements to the usual rules which apply to tax residency. For example, HMRC has recently updated its guidance for clients who may find themselves stuck in the UK as a result of the recent disruption under ‘exceptional circumstances’ and how this impacts on the day-counting exercise under the SRT. This has been followed by an announcement by the UK Chancellor of a limited exception for “highly skilled” individuals who have come from abroad to help with the COVID-19 pandemic, which will mean that the period between 1 March and 1 June 2020 (with possible extension) will not count towards the SRT. As this area involves, we would recommend that individuals maintain detailed records of their residence and take advice in the relevant countries where they have a connection, and especially in those countries they are physically present, to check how their residency status may be impacted by the current situation. We are well versed in advising on these issues, so that clients have a clear idea of where they stand and whether they should take any steps in response.

Individuals who act as directors or employees of overseas companies will also need to be mindful of whether their activities could result in potential inadvertent exposure to tax. In the UK, HMRC has recently published guidance stating their view that the existing rules provide sufficient flexibility so as to avoid corporate tax residence (under the central management and control test) or the creation of a permanent establishment in the UK as a result of activities over a short period of time, without any degree of permanence. Nevertheless, it would remain prudent to minimise the level of activity in the UK where possible and where it is required, maintaining a detailed and accurate record in the event of any future queries being raised by HMRC.

Real Estate

Things I need to consider in relation to commercial property

Which real estate asset classes should I be worried about in the UK?

International Real Estate has been impacted heavily by this virus. Clients should be aware that the most affected asset classes for now are likely to be hospitality, retail, and offices. Nearly all jurisdictions will be practicing ‘social distancing’, which will particularly hurt businesses that rely on the physical presence of people in high concentrations. Hospitality and high street retail is particularly exposed. However, at this uncertain time the UK Government is working extremely hard behind the scenes on ensuring there are business continuity strategies in place. For now there is no total shut down of the construction industry.

What things should I consider as an investor in Europe?

It is likely that investment transactions will temporarily slow down as uncertainty grows. Different real estate asset classes will experience different levels of impact but generally deals are still going ahead at this stage although clearly valuations and building inspections are difficult. Some clients are taking novel approaches eg stage 1 sales tenders proceeding with virtual inspections and using drones to conduct site views of large commercial projects and in connection with sales/acquisitions. It is important to understand that lenders will be taking precautionary measures during this time, and a liquidity crunch could be a risk. Nevertheless, it is important to sit tight as the governments and lenders will take a pragmatic approach to this crisis in the long term.

What if I am a landlord in the UK?

Given the concessions on business rates and support of employee wages, the introduction of new rules with a moratorium for forfeiture for commercial lease arrears was perhaps inevitable as a means to protect the future of commercial businesses in this difficult period. The forfeiture moratorium remains in force until at least 30 June 2020. The Government has also recently announced further measures to prevent landlords using statutory demands and winding up petitions to force tenants to pay their rent and to restrict landlord powers to seize goods to satisfy unpaid rent. While these provisions are yet to come into force, it is expected that they will only apply if the arrears have not been paid because of the virus and that they will last at least until 30 June 2020. The net effect is that landlord remedies are now very limited. However, these provisions do not permanently waive rents that are due. Tenants will face a mounting debt which will have to be repaid at some point or be negotiated with landlords. Unless a landlord has a rent deposit or a compliant guarantor, a landlord's remedy for non-payment will now be to issue debt proceedings at Court. This is unlikely to yield quick results and may only be helpful if the tenant has identifiable assets to enforce upon. Landlord outgoings such as service charge costs will still be payable and this may cause some cashflow difficulties. Certain businesses may be eligible for the Government’s Coronavirus Business Interruption Loan Scheme.

See our article on from our real estate disputes team

Things I need to consider in relation to residential property

What has been the general impact on the property market in the UK?

Social distancing has resulted in the closure of estate agents' offices and physical viewings of properties are therefore suspended for the moment. Not surprisingly, this appeared to signal a halt to new transactions being agreed. Transaction levels have clearly been heavily impacted, but sales of properties on the market prior to the imposition of current restrictions are still being agreed now, often to investment buyers without a viewing of the property taking place. Some sales that had already been agreed but where contracts had not yet exchanged have been paused, with buyers nervous about their ability to service their mortgages in a less certain financial climate. For the most part though, transactions have not fallen through as such and both buyers and sellers seem to be biding their time, at least for the moment. After the initial "shock" phase, where some banks were operating with a skeleton staff, and fielding applications from customers for short term mortgage payment holidays, more products are now being brought to the market and lenders seem to be adapting to the new conditions, with many of them agreeing to rely on desktop valuations.

For the moment, the government guidance is to avoid moving house if at all possible, so long as the social distancing measures continue. Nevertheless, estate agents are reporting that they are receiving a high number of views for properties being advertised online. Virtual viewings are also available for a number of properties that are already on the market and potential buyers, confined to their homes for the moment, are finding more time to spend on their online property searches. Estate agents are offering potential buyers and sellers virtual consultations and encouraging potential sellers to use this time to start preparing for the sale process by getting their paperwork ready and considering instructing their lawyers at an early stage.

In terms of looking forward, commentators anticipate continued interest from international buyers in the off plan market whilst sterling remains suppressed. In the prime markets, short term future demand will be dependent on the relaxation of current travel restrictions. A review of the global markets suggests improved transaction levels in China from the beginning of April across real estate markets. In Europe, the construction industry in Spain returned to work on 13th April and work is resuming on multiple large scale new home developments there.

What happens if I am in the midst of selling property in the UK?

If contracts have already been exchanged with a fixed completion date, government guidance recommends seeking to agree an extended completion date with the buyer where possible. This does not apply if the property is already vacant in which case the guidance is inapplicable. If buyers are not willing to be flexible and change the completion date then sellers will need to bear in mind that the provisions of their sale contracts remain valid and enforceable and they will be obliged to give vacant possession of their property and to complete the sale by the fixed completion date. In the UK, residential sale contracts do not typically contain a force majeure clause and, unprecedented though the Coronavirus outbreak may be, it is not likely to result in either party being entitled to treat a real estate contract as frustrated.

The property industry has adapted its practice for transactions where contracts have not yet been exchanged with the introduction of so called "Covid Event" clauses into contracts. These clauses provide that if completion cannot take place due to a defined "Covid Event" then completion can be delayed with a long stop completion date, without either party being in default. The events are usually widely defined and do not simply cover the possibility of either party being infected and self-isolating but also extend to, for example, delays caused by searches not being processed, the failure of document deliveries, or new mandatory measures introduced by the government which impact on the transaction. These clauses have proved helpful in enabling two willing parties to exchange contracts without contravening government advice and protecting buyer and seller from being in breach of contract in certain circumstances; however they do bring a degree of uncertainty as to whether completion may be disrupted. An alternative, if there is goodwill between the parties, is to agree a fixed completion date some months ahead that can be brought forward by mutual agreement once the social distancing measures have been relaxed.

Immigration

Things I need to consider in relation to immigration and visas

Will absences from the UK due to coronavirus impact on my future Indefinite Leave to Remain (ILR) application?

Typically applicants must have no more than 180 days absence from the UK in each of the years on which they are relying for the ILR application. This is a strict requirement. The Home Office residence guidance for ILR applications does contain flexibility around absence for ‘serious or compelling reasons’. This does not however expressly refer to coronavirus absence and any decision on excessive absence would be a subjective one. We recommend keeping any absence from the UK to a minimum where possible and retaining evidence of the links between the absence and coronavirus (eg flight booking information, FCO guidance etc).

What happens if I am unable to travel to the UK within the dates of the 30 day visa endorsed in my passport?

Successful visa applicants are issued a 30 day temporary entry clearance visa during which time they must travel to the UK. If they travel outside those dates they will either be prevented from entering or landed as a visitor which can invalidate the visa. Visa holders who are unable to travel to the UK within the dates of their 30 day entry clearance vignettes because of Covid -19 travel restrictions or illness due to the virus, should contact UKVI to request a free replacement 30 day temporary visa enabling them to travel. This temporary concession is available until the end of 2020.

What should I do if I have been unable to submit my biometrics due to Visa Application Centre (VAC) closures?

Closures of VACs have left many applicants in ‘limbo’ and unable to submit their biometric data following submission of their online application forms or retrieve their passports following consideration of their applications. Usually, for their applications to remain valid, applicants need to submit their biometric data within 45 days of submission of the online form. VFS Global (a commercial partner of UK Visas & Immigration) has confirmed that applicants will be able schedule a new appointment or reschedule an existing one once the VACs re-open if their appointments have been missed.

I have my visa and am planning to travel to the UK. Will I face extra checks at the airport?

Under the Coronavirus Act 2020, an Immigration Officer has the power to hold anyone arriving at a UK port of arrival for further screening if they have reasonable grounds to believe that the traveller may be infected or contaminated with Coronavirus and there is a risk that they might infect or contaminate others. Travellers to the UK may also be detained if the Immigration Officer has reasonable grounds to believe they have left an infected area within the 14 day period immediately preceding the date of arrival in the UK.

Immigration Officers can detain an individual for 48 hours or until such time as any screening requirements have been complied with and assessment carried out. There is a fine of £1,000 for non-compliance.

My leave is due to expire, what should I do?

If an individual's visa expires between 24 January 2020 and 30 May 2020 it can be extended to 31 May 2020 if they cannot leave the UK because of travel restrictions or self-isolation related to coronavirus. The visa holder must submit an online form via the Home Office website to update their records if their visa is expiring to receive an automatic visa extension. They will not receive an extension if they do not contact the Home Office , meaning they will be classed as an ‘overstayer’ which is technically a criminal offence which may impact their right to return to the UK in the future.

The online form does not need to be submitted where an individual is planning to extend their visa in the UK before 31 May 2020.

See our article on Tier 2 visas

Corporate

Things I need to consider in relation to my business affairs

What should I be considering from a legal perspective?

There is general uncertainty around investment values across all sectors. If families are concerned about any of their investments, they will have to carefully consider their contractual obligations and commitments, and whether an exit strategy is necessary, or even possible, and what (if any) ongoing financial commitments they may have.

How will the investment market impact me in Europe?

It is no surprise that COVID-19 is causing uncertainty across the global markets and investors all over the world are becoming extremely cautious and are concerned about the preservation of wealth. Having said this, we are seeing new transactions, both buy-side and sell-side, coming through the door but also some existing deals being put on hold. The larger transactions seem to be impacted the most whereas more middle market deals are likely to still move forward. Obviously certain industries, such as travel and leisure, transportation and energy/oil and gas have been significantly impacted.

Reputation Management

Things I need to consider in relation to reputational risk

What if my company or me personally, becomes the focus of media attention?

Individuals and their companies may also face reputational risks during the crisis, as the media may look to publish inaccurate or damaging stories.

Allegations of going bust, financial difficulty, rule breaking, tax-payer bailouts, misconduct, mismanagement, closures, redundancies, exploitation or profiteering will increase as journalists look for Corona virus/new angles and pick up stories or opinions on social media from the public. Individuals may not realise that they are compromising their privacy rights by over sharing online during lockdown. It is important that communication is done quickly, but sensitively with enquiring journalists while still protecting your privacy and reputation. You may also find that you need to take a legal approach to warn against publishing or broadcasting false stories or private information (or corrections afterward). In challenging times like these, you may want to consider adding extra bandwidth to your stretched communication teams, these additional resources can act as an extension of your team, and communicate with customers, workers, suppliers, law enforcement, regulators, the media and/or the public.

About out Private Wealth Group

Our International Private Wealth group has been recognised as a market leader for many years. We are one of the few international law firms able to provide clients with a fully integrated service offering that addresses their business, investment and personal needs. Please feel free to reach out to any of our team members if you have your own questions or concerns; we're here to help.

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