New place to call home: Residency and relocation

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Klemens Zeller: Welcome to our Wealth Advisory Series, where we discuss topics related to Life and Legacy. Today, we will be discussing the growing mobility of our clients and the impact this can have on their families and their wealth planning.   As Wealth Advisors, we work with clients that have global footprints, so these themes are top of mind for us.

I’m Klemens Zeller, and today I am joined by my colleague Andrew Whitaker to discuss these important topics, and to delve into the intricacies of wealth and tax planning in the context of a change of residency. Let’s get started.

Andrew Whitaker: Thanks, Klemens. I find that I am having more and more conversations with clients about changing their residency, and the trend has been accelerating in recent years.  Is that your experience?

KZ: It definitely is, although client conversations around moving from country to country are not new.   We have for decades had discussions with families about changes in residency when evaluating options to minimize exposure to political, economic, and security risks.  Relocation planning was often driven primarily around mitigation of these risks, with tax planning a distant second.  And these conversations still occur today, which was the case of an elderly widow who we helped relocate to Switzerland three years ago in a move that was in reaction to security concerns.

AW: Historically, that has been my experience as well, that our clients moved in reaction to an external driver such as security. But that’s not the trend I am seeing now, as we move to an ever more interconnected global society. With families and business spreading across multiple jurisdictions, the conversations have changed.  I am starting to see a new trend, where clients and their advisors are looking at residency as a potential strategic asset, because in a global economy very few things can be as impactful long term as residency. And viewing “residency” in that light, as a strategic asset can perhaps be the single biggest decision a family makes.

KZ: I completely agree that the decision to change a family member’s residency can be one of the most impactful decisions a family makes, but Andrew, tell me more about how residency can be viewed as a strategic asset.

AW: It’s probably best explained with an example.  I recently had conversations with a family about their operating company’s planned expansion to Europe.  The expansion did not strictly require a move of a family member, from an operations perspective, but the family performed a deep analysis of whether having one or more family members move to Europe would provide the family with any strategic benefits from a tax or legal perspective. However, a true strategic analysis goes beyond looking at just the tax and legal considerations. Many families consider residency a crucial risk mitigator, when considering volatile factors such as political instability, economic downturn, climate change and natural disasters.

KZ: I am also often having discussions with families who are not seeking a change in residence, but want access to another jurisdiction for themselves or their children.  For example, many families value the possibility of enabling the next generation to work in Europe.

In these cases, holding or acquiring a second nationality can make sense.  There are a variety of ways to obtain citizenship in different countries, including by delving into your ancestral heritage in some cases.  For example, Spain and Portugal offer citizenship to descendants of Sephardic Jews who were expelled from the country more than 500 years ago.

A different route to follow is to acquire a permanent residence status, where you don’t actually have to physically change your residence.  These permits are often referred to as “golden visas”, and they typically require an investment in real estate or government securities.

AW: One of the drivers of the increase in changes of residency, is that we see multiple countries looking to attract not only capital but people as well through their citizenship and residency programs.   This breath of options has increased interest in citizenship and residency planning, and made it to some extent more challenging.  Historically, there were a few “jurisdictions” that were the primary focus for our clients:  the U.S., the U.K., Switzerland and islands in the Caribbean—the U.S. being the sole jurisdiction without significant incentives to move.  We have now seen, Portugal, Italy, Spain, Uruguay, and at least seven other jurisdictions pass legislation to attract ultra-high net worth clients.

KZ: I agree that the breath of options has become a challenge, as each jurisdiction can have specific regulatory, legal and tax implications that a family should review before making a decision and sometimes the amount of options can be daunting.  That is not even accounting for the business considerations if the motivation behind the move is an expansion of the family business.  On the other hand, all these options should allow advisors to tailor a solution that meets the family’s needs and goals.

In light of this, most clients face the classic dilemma of having to weigh the pros and cons of several jurisdictions and reach a decision that is very personal to their family’s circumstances.

AW:  True, which is why a review of the planned activity or investments of the family, either in the new jurisdiction or back home, is crucial. For example, in many countries, Brazil for instance, directors of companies must be tax residents and for certain families this restriction could be a barrier to exit.

KZ: That makes me think of another issue:  the need to plan for the proper exit.  If the person is going to give up her original residency, what changes does she need to make in order to officially achieve this status?  This cannot be overlooked.

For example, I have seen some clients only focusing on the criteria of the new jurisdiction to acquire residence for tax purposes. However, the family’s home jurisdiction may have a different analysis on what is required to change the tax residence.

AW: Not to mention that a tax treaty could further impact what is required to change tax residency.

I am always amazed about the amount of different variables that must be reviewed as part of any planning and every time I have this conversation, I am constantly reminded about the breath of expertise necessary to tailor a solution that meets the family’s objectives.

KZ: That’s exactly my experience. We worked with a family who had a member moving to the UK, and the entire move was almost derailed because of implications regarding the family member’s pre-nuptial agreement.

AW: Which only further strengthens the need to have advisors in both jurisdictions work in tandem for any potential move.  I cannot stress enough how engaging counsel early on is critical to successful planning.

But even with the complexities, for our ever growing global client base, we will only see more and more families looking at the implications of moving their residence. Frankly with the potential long term strategic benefits, risk mitigation, lower taxes, access to more tax treaties, access to different labor markets and countries actively looking to recruit both capital and residents, this is an area that families should consider when discussing their family wealth.

KZ: The Wealth Advisory Team at the J.P. Morgan Private Bank is here to help you plan for and structure your assets with an eye on your global portfolio. We believe this kind of thorough and thoughtful planning can help preserve your legacy and pass your vision to generations to come.

That’s it for this episode. Thank you for listening to our Wealth Advisory Series on topics of Life and Legacy.