India: The age of Uncertainty

By 2028 the total private wealth held by the Indian community will be around $23 trillion (Rs1,590 lakh crore) estimates the Brand Equity India Report. This will be more than double the total wealth expected to be held by individuals in the UK and Germany. However, the country is facing a number of well-documented challenges including changes to wealth tax in India.

Following the team’s most recent trip to Mumbai, Hawksford’s India team explore the push and pull factors at play for the Indian UHNWI and relevant options for international structuring, namely in Jersey and Singapore, during this age of uncertainty.

Fiscal pressures in India are mounting and among the wealthy there are increasing concerns as to what the future holds for them.  While India has experienced sustained economic growth for decades, the tide is changing. A recent report by Khaitan & Co. referenced the potential for the widening of wealth tax in India as a means of reversing the economic slowdown.  This could lead to increased foreign investments into jurisdictions with more favourable tax laws. BVI, Singapore and the Netherlands are regions reported to have benefited from India overseas investment in the second half of the noughties. It is within this context that many families have members who are happy to leave the country to enable a portion of the family wealth to be legitimately retained outside the country.

Many wealthy Indian families are very global in nature, be it in terms of businesses and assets that they own or the residence and citizenship status of members of these families.  Jersey and Singapore- based structures are increasingly required to accommodate Indian family requirements when the family members are spread across the globe.

The complex statutory residence test in India could mean that an NRI is considered to be an Indian resident should he or she have a high percentage of assets remaining in India despite being tax resident in the jurisdiction they are now domiciled in.  These complex matters require long term specialist thinking and will benefit from trustees with genuine international experience, working together with the family advisory team.

According to Study International, Indian students tend to make up the second-largest group of international students in major English-speaking host countries such as the US, Australia and Canada.   The UK’s recent policy change to allow international students two years of post-study work visits could be another trigger event: will, for example, more of the next generation of Indian families become future tax residents of the UK?

There are of course instances of other family members wishing to return to India and in this case, again, similar planning opportunities may also exist.

Decisions to set up trusts and other structures outside of India will not be taken lightly by international Indian UHNWI families.  However, this cultural dynamic is changing as wealth levels, national volatility and international complexity are becoming stronger drivers in demand.

Having an offshore trust structure in place, in a reputable IFC such as Jersey, is a stable option for portfolio diversification, asset protection and trust family office management for the international client.  Here are some explanations of why Jersey works:

• Resolving inter-generational issues

To ignore the younger generation is a risky strategy, threatening future disharmony, or worse still, acrimonious litigation, somewhere down the line. Working with international Indian families and their local advisers, we’ve found ways to navigate this including well-planned and graduated involvement for new family members into trust structures, sensible and regular levels of communication, encouraging all involved to be party to the agreement of family protocols, and where appropriate planned involvement with family companies and business matters/assets.

• Asset protection and estate planning

Trusts and Foundations have been in existence for many hundreds of years and it is in many ways gratifying to see that the tax imperative is frequently only cited as the third or fourth reason for creating a new trust structure.   They have stood the test of time because they still adapt to achieve the same underlying objectives in a changing environment.

Why would any client not wish to take all legitimate steps to protect what they have worked hard to accumulate, or preserve, or to capitalise on that which someone else has worked hard to accumulate on their behalf?

• Jersey for the international family

With the ability to manage structures with an increasingly international beneficial class, including the US, the UK and the Middle East, Jersey provides opportunity for clients wishing to structure their assets before they leave India or prior to returning home.

• Retention of Control

There are a multiplicity of ways in which control can be retained to manage dynamic tension between a prospective settlor’s understandable desire to retain as much control as possible, and an overarching objective to protect assets. These include reserved power trusts, Private Trust Companies (PTCs), protectors and protectorship committees, family directors on boards and more informally, letters of wishes which sit alongside the practical ways in which an eye can be kept on trust assets, including view only facilities in relation to investment portfolios and banking deposits.

• Costs

Not surprisingly, this tends to feature high on the list of priorities for HNWI international Indian families.  Trustees have a responsibility to explain why trusts offer value for money.  Good governance is key to ensuring structures will withstand future attack.  This is achieved through Jersey’s experienced professionals and longstanding credentials in financial regulation.