High-net-worth individuals (HNWIs) often navigate unique tax challenges due to their complex financial landscapes, global investments, and multi-jurisdictional obligations.
For advisors serving these affluent clients, implementing effective, cross-border tax efficiency strategies is essential to optimise wealth and minimise liabilities.
This guide outlines key strategies for advisors to help HNWIs achieve tax efficiency on a global scale, focusing on areas such as capital gains, inheritance taxes, non-domiciled (non-dom) statuses, and cross-border asset management.
Tax Efficiency Strategies for High-Net-Worth Clients
HNWIs often maintain financial portfolios that include diverse global assets, multiple residencies, and varying tax obligations across jurisdictions. Tax-efficient planning for such clients goes beyond conventional tax reliefs and deductions.
Advisors must consider a multi-faceted approach, integrating global tax optimisation, precise asset structuring, and proactive capital gains and inheritance tax planning to create a streamlined, tax-efficient portfolio.
Key Areas of Global Tax Planning for HNWIs
For affluent clients, developing a comprehensive tax strategy involves strategic planning across various asset classes, residency statuses, and tax regimes. Here are the critical focus areas for advisors working to create tax-efficient strategies for high-net-worth clients:
- Capital Gains Tax Management
Capital gains tax (CGT) is a significant consideration for HNWIs with high-value assets that are appreciating over time. Recent tax policy shifts in various countries have increased capital gains tax rates, notably impacting the wealthiest taxpayers. In the UK, for instance, the capital gains tax rate is now 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, with a reduced annual allowance of £3,000. This limited allowance necessitates that HNWIs plan asset disposals carefully, especially if they anticipate realising substantial gains within a particular tax year.
To mitigate the impact of CGT, advisors should guide clients towards structured, staged realisations of assets. They can leverage tools such as annual exemptions, tax loss harvesting, and, where applicable, tax-deferred investment accounts. For international clients, balancing asset realisation in jurisdictions with preferential tax treatment may also yield significant savings.
- Inheritance Tax Planning and Trust Structuring
Inheritance tax (IHT) is a critical concern for HNWIs, particularly those with cross-border assets. Recent changes in inheritance tax policies and the taxation of non-domiciled individuals have impacted commonly used structures, such as Excluded Property Trusts (EPTs). These trusts historically enabled non-domiciled individuals to shelter foreign assets from UK IHT; however, changes effective as of October 2024 have removed the EPT status for trusts created after this date. Consequently, clients who set up new trusts will need to consider the UK’s IHT exposure for all beneficiaries, as the trust’s assets will now be subject to tax.
Given these shifts, advisors must carefully review new and existing trust structures to ensure they comply with evolving regulations. Exploring alternative planning strategies, such as gifting within annual allowances and using life insurance policies within trusts, may help reduce inheritance tax exposure for clients and create a more tax-efficient estate plan.
- Navigating Residency-Based Tax Regimes
The UK’s long-standing non-dom regime, which has historically allowed non-domiciled individuals to opt for a remittance-based tax system, is set to end. The replacement residency-based tax system, beginning in 2025, will require anyone who has been a UK tax resident for four or more tax years to be taxed on their worldwide income. For HNWIs who are currently UK residents, this means that tax liabilities will shift significantly, as all global income will become subject to UK tax.
US citizens face similar complexities due to the US’s citizen-based taxation, which applies to all global income, regardless of residency. Consequently, advisors must work with clients to assess whether changing residency or domicile could better align with their tax goals. Advisors should inform clients of key residency-based tax considerations:
- For those planning to exit the UK: The UK imposes a “tail” effect, meaning global assets could still be subject to IHT for up to 10 years after departure. Advisors can assist in determining whether a relocation or restructuring could mitigate potential tax exposure.
- For those planning to return to the UK: A transitional relief allows returning residents to exclude foreign income and gains from UK tax for the first four years of their return, a beneficial strategy for clients with significant foreign-sourced income.
Cross-Border Strategies: Tax Efficiency for US Expats
US expatriates face unique tax challenges, particularly due to the US’s global income taxation, which creates complex reporting obligations. High-net-worth US clients residing abroad require meticulous management of income, investments, and asset structures to avoid overpayment or double taxation.
- Mitigating Double Taxation and Avoiding PFIC Issues
Passive Foreign Investment Company (PFIC) rules create substantial tax burdens on non-US mutual funds, affecting the after-tax returns of American expatriates. To mitigate these effects, advisors can steer clients toward US-domiciled investments or individual equities, which are typically not subject to PFIC regulations. Additionally, aligning clients with US-based custodians can reduce investment costs, as fees are often lower compared to foreign custodial arrangements.
- Maximising Tax-Deferred Accounts
Retirement accounts like Roth IRAs offer substantial tax-free growth for US expats, allowing them to sidestep certain foreign tax complexities. While UK ISAs are beneficial for local residents, they are less favourable for US expats due to PFIC treatment. However, Roth IRAs can offer tax-free growth opportunities under both UK and US tax treaties, making them an attractive choice for American expatriates.
- High-net-worth clients who exceed the income thresholds for Roth IRA contributions may consider a “backdoor” Roth IRA strategy, enabling them to maximise their tax-free retirement savings. By contributing to a traditional IRA and then converting it to a Roth IRA, clients can achieve tax efficiency while ensuring compliance with US tax rules.
- Currency and Global Diversification Considerations
US expats seeking to diversify their portfolios internationally need to navigate foreign exchange (FX) risks carefully. Balancing portfolios with exposure to both US and international assets, while aligning investment currencies with liability currencies, helps clients mitigate FX risks. For instance, holding a portion of investments in the same currency as future spending needs or liabilities can reduce FX volatility and protect long-term gains.
- Strategic Gifting and Asset Transfers
For HNWIs, strategic gifting can significantly reduce taxable estates. US clients with non-American spouses, for instance, may gift assets up to an annual allowance of $164,000 to their Non-Resident Alien spouse, which effectively excludes these assets from the US tax net. This strategy can yield substantial tax savings, particularly when combined with a thorough review of asset ownership and capital gains treatment in the recipient’s tax jurisdiction.
Capital Gains Management for International Clients
Capital gains tax continues to be a major consideration for HNWIs, especially those holding appreciating global assets. To reduce capital gains tax exposure, advisors can employ several advanced strategies:
- Tax Loss Harvesting and Strategic Gifting of Appreciated Assets
By realising losses on underperforming investments, clients can offset gains, reducing overall CGT liability. Advisors can further enhance tax efficiency by recommending the gifting of highly appreciated assets. When done strategically, this can help clients reduce their CGT burden by transferring assets to individuals in lower tax brackets.
- Timing Gains within Annual Allowances
With limited CGT allowances, it’s essential for advisors to counsel clients on realising gains within annual thresholds. For international clients, coordinating gain realisation with jurisdictions offering preferential CGT treatment can result in notable tax savings.
End-of-Year Financial Planning: Maximising Efficiency and Compliance
As the tax year draws to a close, advisors should conduct a thorough review of HNW clients’ portfolios to identify any outstanding tax-saving opportunities:
- Annual Income and Gain Review
By examining year-to-date income, gains, and dividends, advisors can help clients take proactive steps to align realised income and gains with their tax planning objectives. Tax loss harvesting, strategic gifting, and efficient use of allowances can all contribute to minimising tax liabilities before year-end.
- Full Utilisation of Gifting and Pension Contribution Allowances
Advisors should ensure that clients fully utilise their annual gifting allowances, particularly in cases of dual taxation exposure. In addition, maximising pension contributions, where applicable, is crucial for both short-term tax efficiency and long-term retirement planning, especially for US expats with cross-border reporting requirements.
- Compliance and Timely Tax Filings
HNWIs with cross-border assets must ensure compliance with all relevant tax obligations. Advisors should facilitate the alignment of tax credits and coordinate filing deadlines across jurisdictions to prevent overpayment, avoid penalties, and optimise tax efficiency.
Conclusion: The Essential Role of Advisors in Global Wealth Management
For HNWIs, achieving global tax efficiency is a continuous process involving strategic residency planning, precise asset structuring, and careful cross-border management. Advisors are instrumental in helping these clients preserve and enhance wealth by implementing advanced tax-efficient strategies suited to each individual’s financial circumstances and goals.
Global tax-efficient planning requires deep expertise in local and international tax law, an understanding of cross-border financial products, and the ability to navigate complex residency and domicile issues. By employing a proactive, multi-jurisdictional approach, advisors can help high-net-worth clients achieve greater tax efficiency, minimise liabilities, and protect wealth across borders.
The Legal Stuff
MASECO Private Wealth is not a tax specialist. This article does not take into account the specific goals or requirements of individuals and is not intended to be, nor should be construed as, investment or tax advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy. Information about potential tax benefits, including the levels, bases of and reliefs, from taxation is based on our understanding of current tax law and practice and may be subject to change. We strongly recommend that every client seeks their own tax advice prior to acting on any of the tax mitigation opportunities described in this article. The tax treatment depends on the individual circumstances of each individual and may be subject to change in the future.
- Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such.
- The views expressed in this article do not necessarily reflect the views of MASECO as a whole or any part thereof.
- This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice.
- This document does not constitute a recommendation, offer or solicitation to buy or sell any products or to adopt an investment strategy.
- Although the information is based on data which MASECO considers reliable, MASECO gives no assurance or guarantee that the information is accurate, current or complete and it should not be relied upon as such.
- Past performance is not a reliable indicator of future results.
MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is established as a limited liability partnership under the laws of England and Wales (Companies House No. OC337650) and has its registered office at The Kodak Building, 11 Keeley Street, London, WC2B 4BA. The individual partners are Mr J E Matthews, Mr J R D Sellon, Mr A Benson, Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr E A Howison and Ms A L Solana. For your protection and for training and monitoring purposes, calls are usually recorded.
MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.
