When it comes to Brexit, uncertainty is rife. As negotiations get underway, it is likely that UK-based businesses will see some change, but there is no indication as yet to what extent that change will be.
The UK’s so-called divorce from the European Union was triggered on 29 March 2017 when Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty. This will see the country leave the EU by 29 March 2019 at the latest.
Making matters more complicated, Prime Minister May’s decision to call an early general election on 8 June 2017 to cement her position during the negotiation process backfired and has left her leading a minority government. This has placed further pressure on the UK’s businesses at a time when the future landscape is so uncertain.
In spite of these mounting pressures, the UK’s largest businesses have been putting contingency plans in place for a range of potential outcomes long before Brexit negotiations began and the election was announced. It is believed some companies began considering their options prior to the EU membership referendum in 2016.
These contingency plans could result in some – or all – of many companies’ current UK operations being moved to continental Europe and therefore some executives may be forced to relocate from London.
To date a number of large businesses with UK operations have threatened to leave. At the start of 2017, HSBC and UBS both announced their intention to move a large number of London-based staff out of the city, while technology giant Microsoft stated that it is reconsidering plans to expand its UK-business.
“Every institution will be thinking about contingencies, just in case,” says Mark Hassett, managing director, Corporate Executives at RBC Wealth Management in London. “For executives faced with the prospect of relocation, the situation is not going to change for a couple of years and, even then, London will remain an attractive place for wealth.”
Julian Washington, head of Client Insight at RBC Wealth Management in London, agrees the UK’s capital city is genuinely an international hub of expertise and opportunity for the private wealth industry.
“We already have clients who have come to the UK, and London in particular, even if the UK isn’t their primary base,” he says. “That, in part, is because of the re-assurance of the expertise among wealth managers, private banks, accountants, legal – the whole advisory industry involved in serving that high net worth client base. That isn’t going to change.”
Heading into the unknown
It cannot be presumed that the UK will exit the EU and its associated benefits without experiencing any long-term changes to the way it does business and how people structure their assets.
Hassett says it is impossible to forecast what the implications of Brexit will be, but suggests the notion of passporting – the right to sell a product from one EU country across the single market – is one that may no longer be available once the UK has split from the EU.
For British financial institutions operating outside of the UK, the loss of this arrangement would significantly diminish their ability to serve European clients. They would no longer be able to market products to clients in Europe and would instead have to rely solely on prospective clients approaching them directly.
The workaround for companies facing this scenario is to set up a subsidiary company in Europe and relocate currently UK-based executives to the continent to manage the new location.
Hassett quite rightly adds, however, the loss of passporting does not spell the end as the Brexit negotiations could carve out an alternative scenario that could be equally attractive.
“European institutions want accounts in London, therefore the thought is they will perhaps come to an agreement that is mutually beneficial,” Hassett says. In other words, there is hope an agreement could be made to maintain the status quo.
Out of sight, not out of mind
Even if an executive has to relocate, this does not mean they necessarily have to make drastic changes to their financial affairs, Washington says. “The richness of investment opportunities here is such that corporate executives will want to keep a toe in the UK,” he says.
The attractions of the UK, and London in particular, extend far beyond its inclusion in the EU. Its regulatory, tax and legal system, for example, is respected across the globe and highly valued by high net worth individuals.
“In spite of going through a raft of changes – the latest being in April – our famous tax regime for non-domiciled people is still a draw so much so that countries like Italy and Portugal have tried to introduce their own versions of it,” Washington says.
In 2009, Portugal introduced the non-habitual residents regime in addition to the double tax treaty it already had set up with the UK. Italy’s tax incentives for non-domiciled residents were approved by the government in December, forming part of its Finance Bill 2017.
Resilient in the face of uncertainty
Despite the uncertainty that Brexit has created, the UK economy has remained resilient, and in the months following the referendum result in June 2016, a number of global businesses announced their intentions to further invest in the UK.
Pharmaceutical company GlaxoSmithKline, for example, announced a £275 million expansion to its UK manufacturing sites and car manufacturer Toyota is pumping £240 million into its plant in Derbyshire.
It is believed the UK will continue to be a draw not only for businesses but also for investors as Hassett says the regime in the UK is equivalent, if not better, than that of the EU. “Those who are faced with the potential of relocating from the UK will need to think about their finances, but the UK will always be attractive for many reasons, not least diversification,” he adds.
Indeed, London’s relationship with financial hubs, such as Guernsey and Jersey, remains favourable – particularly to family businesses and generational family wealth.
The UK also has additional benefits, which Washington refers to as ‘soft factors’ that underpin the attraction of being in the UK, such as the culture, education and language to name a few.
Stay or go?
The fact remains that the face of the UK is unlikely to be the same as it is now once its divorce from the EU is finalised, particularly when it comes to financial affairs. Businesses and individuals alike, while making plans to fit any conceivable outcome, will find themselves having to review certain aspects of how their wealth is managed.
Ultimately, relocation to continental Europe, or further afield, shouldn’t deter executives from continuing to work with UK wealth managers and financial institutions.
“People are being purposeful and optimistic that there is still a good future for this work, even though we don’t precisely know the form of that future,” says Washington. “But there is no doubt that the UK remains an attractive proposition even for those who find their careers are taking them in a slightly different direction.”