More On Tax Planningfrom The Advisor's Professional Library
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- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
Much ink has been spilled on the trend of wealthier Americans fleeing fiscally dissolute, high-tax states like California and Illinois, and heading for comparative tax havens such as Texas and Florida. The golfer Phil Mickelson made headlines recently when he wondered aloud about leaving his native California over its newly enacted steeper tax rates on the rich.
And when France sought to introduce a new wealth tax, its wealthiest businessman, Bernard Arnault, sought Belgian citizenship while one of its most famous actors, Gerard Depardieu, found a financial haven in Russia.
While in the American popular imagination, tax flight is something that prompts overtaxed Europeans to come to America (think John Lennon), Facebook billionaire Eduardo Saverin’s renouncing of his U.S. citizenship and move to Singapore in 2011 to avoid a $67 million tax bill may mark the point when America came of age as a higher-tax developed nation.
That is because anecdotal evidence, as well as the increasing rate of Americans renouncing their citizenship since the IRS started tracking the phenomenon in 2008, suggests that the wealthiest Americans may no longer be content to move merely to Miami Beach or North Dallas, but are looking to overseas destinations with less onerous tax requirements.
This heightened interest in tax flight is a trend spotted by Nigel Green, CEO of the deVere Group, a global financial advisory firm catering to British expats and wealthy Americans in foreign countries, among others.
The firm, which according to its website has $90 billion in assets under management and 70,000 clients in more than 100 countries, is now making a push into the U.S., with offices in New York and Miami. AdvisorOne asked Green about the conversations occurring between his deVere's advisors and their wealthy U.S. clients.
What destinations are U.S. tax refugees looking at and why (aside from, or in addition to, tax advantages)?
In our experience, the Cayman Islands, Hong Kong, Thailand, Malaysia and the Philippines are proving to be popular destinations for America’s high-net-worth individuals who are considering moving themselves and their assets out of the U.S. to safeguard their funds. Having said that, anywhere they’ll be taxed less than 30% might seem appealing.
Besides the tax advantages, these individuals might be drawn to a destination because it offers a more attractive quality of life, a greater potential for job promotion, lower crime rates and a safer atmosphere, a lower risk of natural hazards, and better education and health care systems, amongst other factors.
Texas Gov. Perry is flamboyantly holding open the welcome mat to California businesses. Are any international leaders involved in recruiting wealthy Americans?
To my knowledge, international leaders have not been directly involved in recruiting wealthy Americans as Gov. Perry of Texas has been doing—although perhaps they should be and will in the near future—as it might be perceived that this could potentially damage relations with Washington.
Instead it would seem many international governments are trying to attract high-net-worth individuals with attractive tax policies. For example, top individual income-tax rates in Singapore are 20% and in Hong Kong they are 17%, compared with 35% in the United States.
However, I would not be at all surprised if some international leaders do start flamboyantly offering those wealthy Americans, who are looking to reduce their tax liabilities, the welcome mat. Perhaps the precedent has already been set by Russia’s president, Vladimir Putin, who recently granted French actor Gérard Depardieu Russian citizenship after a very public row with the French government over taxes on the wealthy.
What has persuaded tax migrants to give up on the U.S. rather than wait for a regime change (or be satisfied with a move to Texas or Florida)?
There’s a growing sense amongst high-net-worth Americans that the tax policy of the U.S. is heading in the wrong direction, and the majority of our clients tell us that they don’t believe a change in administration would radically alter this.
Between January and February of this year there was a 48% month-on-month rise in the number of deVere Group’s U.S. clients with assets of more than $1 million inquiring about permanently relocating outside the U.S., specifically to reduce their tax burden.
What effects do you foresee on the U.S. and their new tax havens of the migration of wealthy Americans?
Various studies over the decades have shown that capital flight hits economies hard as it represents a loss of income for the government. We’ve seen large-scale tax migration can create higher unemployment and destabilize currency and exports, for example.
However, perhaps one of the most significant points would be the loss of all that business experience and creative flair that the country needs for sustained economic growth.
What the U.S. would lose, the lower-tax jurisdictions would surely gain.
Read Have the World’s Wealthy Stashed $21 Trillion in Tax Havens? by Gil Weinreich on AdvisorOne.