Context Magazine

Dressed for succession

Edition 1 - The united issue

An increasing number of families are dividing their time between London and the US or choosing to relocate across the Atlantic. Here we highlight some of the key issues that need to be considered ahead of a move across the pond.

The number of Americans coming to live and work in London continues to increase, with Americans now second only to the Chinese as the biggest overseas buyers of prime central London residential property. Driven in part by the strengthening of the dollar against the pound and the ongoing attraction of investing in London property, US buyers accounted for 6% of all purchasers of high-end property in the first half of 2019, with the proportion of homes sold to them doubling in the last year, according to estate agent Knight Frank.

At the same time, a growing number of Brits are making their way across the Atlantic. America is now second only to Australia as the most popular country for Brits settling abroad. California, in particular, is becoming a destination of choice: it is estimated that there are 200,000 British citizens living in Los Angeles alone, with many more moving to San Francisco and its surrounds to work in the tech industry. Former Deputy Prime Minister and Leader of the Liberal Democrats, Nick Clegg, is a case in point, having recently upped sticks to California to work as Head of Global Affairs and Communications at Facebook.

Anna Worwood, Family Partner at Penningtons Manches Cooper, says: “We have a large number of clients whose children go to university in the US, and that looks set to increase. Once UK universities started charging tuition fees, it raised a question of value for money. Parents able to pay high fees are attracted by the more rounded nature of the US university system where most students select from a broad range of subjects before deciding on their ‘major’.”

Tax planning

With transatlantic relocation comes a raft of private wealth issues for individuals to consider. The differences in the two tax systems can present particular issues, according to Elizabeth Nicholas, Private Client Senior Associate at Penningtons Manches Cooper. She says: “Generally speaking, there is a lack of understanding about how tax and succession planning work in the UK and the US. If a family moves to the US from the UK, they will quite often retain assets here as well as acquiring new assets in America. People often overlook the fact that inheritance tax still applies in the UK on those assets; if assets are kept here for investment purposes, they do not escape the UK tax net.”

A plan that works in one place might create real problems in another. “It’s not just about what you might have personally, but also the structures that you are involved with, whether as a company director, as a trustee or a beneficiary, as there can be significant tax implications if you move,” says Nicholas.

“If a family moves to the us from the UK, They will quite often retain assets here… and overlook the fact that inheritance tax still applies in the UK on those assets.”

Family law issues

Further complications can arise in the event of a marriage breakdown, with many differences between approaches to family law in the US and the UK. These can come into play for families who cross the Atlantic in either direction. California was the first state to introduce a ‘no fault’ policy in divorce proceedings, not taking either party’s behaviour into account. Today it is possible to obtain a ‘no fault’ divorce in every US state. New legislation is currently passing through the UK Parliament to introduce a similar concept of ‘no fault’ divorce to the English system. Under the current UK system one party must petition for divorce and, in so doing, show evidence of the irretrievable breakdown of the marriage based on adultery, unreasonable behaviour or a lengthy separation.

Worwood says: “The concept of ‘conscious uncoupling’ that Gwyneth Paltrow talked about when she split from her ex-husband Chris Martin is not so far from how things are done in the States, where you can literally cite irreconcilable differences as a reason for a divorce, and there is no blame game.”

That is not the only difference in how things are done in the US. In English family courts, proceedings are usually held in private, and many published judgments are also anonymised to protect the parties or their children. This offers participants a level of privacy that is difficult to obtain in the US, where most family disputes are dealt with in open court. Worwood adds: “In California and New York, in common with many US states, everything is dealt with in open court. This degree of exposure is something that many wealthy and well-known individuals are keen to avoid.”

Those that have entered into prenuptial agreements in one jurisdiction before relocating across the pond would be well advised to have that agreement revisited in the context of the local law. There can also be significant tax issues to take into account.

Furthermore, separated parents wishing to take children out of the UK must seek permission from the other parent to relocate.

Worwood explains further: “In order to make a successful Leave to Remove application, you need to convince the English court that the move is in a child’s best interests, and that they will be able to maintain a good relationship with the parent left behind. It’s essential to put together a package to show all the benefits for the child of making the move.”

“You need to convince the English court that the child is going to be able to maintain a good relationship with the parent left behind.”

Succession planning – Wills and probate

Nicholas advises that you should consider having a Will in every country where you own physical property or significant assets, and also that you should look at updating your Will when you move country, acquire significant new assets or otherwise have a major change in circumstances.

Wealthy individuals in the US are often advised to create Revocable Living Trusts, which are essentially asset-holding structures that can act like a Will, but avoid the need for probate. This is because the probate process (dealing with the estate of someone who has died) can be slower and more expensive in the US than in the UK.

Nicholas says: “Clients moving from the US to the UK often arrive with those structures in place and we have to analyse them from a UK tax perspective. Likewise, clients moving to the US from the UK might, on arrival, be advised to set up a Revocable Living Trust and this could trigger problems back in the UK.

Immigration rules

On the face of it, the rising number of Americans moving to London is reflected in the UK Government’s continued relaxation of the visa requirements for non-EU nationals.

In contrast, the US immigration authorities are becoming stricter, closely scrutinising their EB-5 immigration visa programme, which is a path to US permanent resident status based on investment and US job creation.

Illustration for Dressed for Succession

There are a number of other ways UK individuals can qualify for US visas without such investments which can also lead to permanent resident status. These include applying for O-1 Extraordinary Ability visas if they excel in the sciences, arts, business or athletics.

“Despite the relaxation of the UK immigration rules, navigating the system continues to present its challenges,” says Hazar El-Chamaa, Immigration Partner at Penningtons Manches Cooper. “So it is important to review the immigration requirements carefully in advance of any decision to move your family. If possible you should think ahead to what the future may hold in terms of the education of your children, or where you or they may want to live in the future. For those applying for UK visas, a child is only dependent until the age of 18, so families need to make a separate application for a non-dependent child to stay on at school here or to move on to university.”

Nita Upadhye, Managing Attorney at NNU Immigration in London, offers three tips to those looking to succeed with US immigration: “First, don’t take short-cuts,” she says. “Under this administration, the level of scrutiny of visa applications has hit another level, so it is important to dedicate the time and effort necessary to prepare a thorough, well-documented application.”

She also advises applicants to be truthful and disclose any issues, such as criminal convictions or immigration violations from the past. The US does not recognise the UK Rehabilitation of Offenders Act, so any brush with the law is relevant however long ago it occurred, putting those with decades-old drug or alcohol offences at risk.

Finally, Upadhye says: “If you would like your children to have permanent resident status, bear in mind they are no longer eligible for dependent status after age 21 and would have to qualify for a US visa separately.”

A move to the other side of the Atlantic may be high on the agenda for a growing number of families, but a failure to consider some key legal crosswinds can make it far from plain sailing.

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Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP