Beware the faux hobo from Monte Carlo only the wealthy new breed of High-Not-Worths can afford to hide their money, says Charlotte Eager
Beware the faux hobo from Monte Carlo – only the wealthy new breed of High-Not-Worths can afford to hide their money, says Charlotte Eager
Tycoons used to tell each other that ‘if it fucks, flies or floats, then rent, don’t buy’. London is now the divorce capital of choice in Europe for wealthy wives looking to up-grade their bank to an off-shore Swiss boutique, like Mirabaud (the Coutts equivalent for the international serious money set).
This philosophy now seems to have permeated down to their houses, and just about anything else that can be seized as a tangible asset in the event of death, divorce, writs, company blow-ups, bankruptcy, or a dispute with the tax authorities.
Today, it is not just tycoons and multi-millionaire moguls who are playing the asset hiding game. Welcome to the rise of the High-Not-Worths (HNWs) – the new, younger, savvy breed of über-wealthy hedge fund managers, successful entrepreneurs, investment bankers, asset managers or self-styled internet moguls who – on paper, at least – are proud to boast at dinner tables (in front of their wives or mistresses) that they have no financial worth.
Legally, Russian billionaire Roman Abramovich is as poor as a church mouse. Russian NTV has reported that, what was rumoured to be the priciest divorce in history wouldn’t even cost him a cent. Abramovich’s financial advisors have come up with an iron-clad scheme, in which everything actually belongs to his five children.
Houses, boats, shares and even the Chelsea football club are actually distributed among the five, and Abramovich just takes care of the finances, until they turn 18. There is really not a penny to his name, so a possible divorce from his wife Irina will end up costing him nothing, financial experts from Millhouse Capital, his investment fund, have shared.
This new trend is nothing to do with being broke. Far from it – the HNWs are often enormously wealthy. However, the money is all offshore, having been cleverly squirreled away in Cayman Island bank accounts or trusts, so that their wives have no knowledge about them, whatsoever – should they ever have to fill in Form E that requires full and frank financial disclosure in the UK divorce courts.
If you don’t know where the money actually is, a court will not allow a divorcing wife to ‘go fishing’ – which means asking a court to rule that her husband produces all the documentation relating to any bank account or trust that he has anywhere in the world – from the Bahamas to Luxembourg.
Unless the wife, tax inspector, or person issuing a writ against you actually knows the name of the account, there is an almost zero chance the accounts will ever be seized or exposed.
In the old days, of course, tycoons or mega-rich international families – especially in countries, such as Italy or Greece, where the governments were liable to seize wealthy family’s assets or accounts, or just tax them to death – always parked large parts of their wealth offshore, secretly, whether it was Lichtenstein or Switzerland.
What is new about the rise of the younger breed of HNWs is that they literally don’t own a thing – not even their Wilton Crescent house or Aston Martin DB8. They are proud to tell their friends: ‘If she divorces me, she won’t get a thing – the Knightsbridge house is in our daughter’s name; the Aston is a company car; the chalet in St Moritz is on a ten-year lease; the contemporary art belongs to a trust in Geneva, and we only have £10,000 in our Coutts current account.’
Swanking about one’s relative ‘poverty’ is a new thing in socially competitive London, where – especially since the invasion of international types taking advantage of the lenient ‘non dom’ tax status for foreigners – social identity is invariably defined by perceived real wealth: how many Fendi handbags in the rosewood, hand-carved walk-in closet; the size of one’s husband’s bonus; the amount they get per week in the summer for renting out their Tuscan villa to some up-start celebrity chef, and so on.
The reason that nobody bats an eyelash when it turns out that all the supposed ‘assets’ a couple or an individual has are actually not in the person’s name is that the idea of traditional property ‘ownership’ has become too bourgeois.
It is simply too dangerous for many men, as seen by the High Court ruling of a pay-out of £5 million to the ex-wife of Allan Miller, a 42-year-old hedge fund manager at New Star asset management, whose marriage to his wife Melissa lasted three years.
That Miller has so quickly got married again, after being so crisply financially burnt, is, to quote Dr Johnson on re-marriage, a definite case of ‘the triumph of hope over experience’.
It is usually women who are getting the raw side of the deal with the rise of the HNWs. Birgit Cunningham found out about this new breed – always immaculately dressed and, at least, looking like a million dollars – the hard way.
Harry Nuttall, the Eton-educated son of the Bahamas-based tycoon Sir Nicholas Nuttall, and also her ex-boyfriend and the father of their four-year-old son, Jack, managed to prove to the satisfaction of the Court of Appeal, last October, that he had no net worth so didn’t even have to pay the £5.41 a week child support he had been ordered by the CSA.
On paper, Harry hasn’t got a penny to his name, but he appears to lead an expensive and lavish lifestyle. ‘He was sitting in his Savile Row suit, and the Judge said, ‘Do you expect Mr Nuttall to sell his shooting rifles for child maintenance?’ I sat with my mouth open, thinking: ‘Yes. They are probably worth £25,000 each!’ she explains.
‘He’s also a member of Annabel’s, Harry’s Bar and George. He banks at Coutts. A friend even saw him pay for a whole bunch of people to have dinner at George in cash, but the Judge said he wasn’t interested in anecdotes. He needed documentary evidence and the only thing we could find were the rifles.
Harry used to live in a house in Queensgate Place, South Kensington, but it was owned by a family trust in Jersey. His new house in Chelsea is in his wife’s name.’
Nuttall and Birgit had been seeing each other on-and-off for over a year when she discovered she was pregnant. ‘To begin with, Harry was over the moon. He was delighted to do everything to help. If it was a boy, he’d pay for him to go to Eton. This was his first child,’ she says.
Then he met his current wife, banker Dilit Cohen, and married her when Jack was only two week’s old. ‘Now, he’s got two more children,’ says Cunningham. ‘His wife has had private births in the Portland, live-in maternity nurses and live-in nannies – for which he built extensions onto the house. The works. I live in rat-infested temporary accommodation off Ladbroke Grove, while I’m waiting for a council flat. I’m a single mum, and on benefits of £25 a week.’
Interestingly, the High Court Family Division Judge, who made the ruling in favour of HNW Harry Nuttall, was Mr Justice Singer. He had, previously, ordered Mr Miller to pay off the £500,000 mortgage on the £2.3 million former matrimonial home in Chelsea, and hand it over to his former wife.
In the settlement, Mr Miller was also ordered to pay Mrs Miller a lump sum of £2.7 million, making a total of £5 million. The point about this landmark case is that the law might not appear to be fair, but certainly Miller would have been far, far better off if he was not married in the first place.
Alan Miller’s wealth on paper was shown to be £17.5 million, with additional shares valued at £18 million. Such rulings keep the hedgie brigade awake at night, so it is hardly surprising that a new well-heeled legion of high-net-worths are rapidly transforming themselves – with excellent legal advice on the Cayman Islands – into HNWs overnight.
Anyone – however secure their marriage – who keeps the bulk of their wealth in their own name is regarded as naïve by most professional wealth advisors. ‘I have a client who lives in a house in London worth £14 million, with four children at private school, but his income on paper is only £50,000,’ says an asset manager (who wishes to remain nameless).
‘But he actually lives on an income of at least half a million. Clients come to me and tell me how their money is hidden. They wrap their money up in so many different layers that it’s impossible to find. The word “layers” is a misnomer for money laundering. One trust fund can be set up to hold another one.’
Another lawyer explained how a hedge fund, working in the UK, would have a parent company in a low-tax jurisdiction, such as Jersey (half the population of Jersey, like the Cayman Islands, make their living from being offshore trustees). ‘The Jersey company charges the hedge fund a management fee and a service contract with the UK branch,’ he explained.
‘Enough money comes through the UK for these guys to get paid and fund their English life-style, as well as keeping the taxman happy. Their salaries are then paid through it – but not their bonuses. The big money ends up in Jersey – a huge pot of gold, in a tax-free jurisdiction.’
It is now extremely common for London houses to be held either by companies or offshore trusts. But this is not just because people are trying to hide their assets from vengeful spouses. Lawyers explain that having a house owned by an offshore company is useful if you live in the UK as they are domiciled for tax off shore or if you are getting on a bit and worried about inheritance tax.
‘Your assets in the UK get hammered, but if your house is owned by an offshore company, then it’s OK,’ explained a lawyer.
‘It’s also a question of avoiding stamp duty,’ explained Justin Sumner of Savills, who specialises in selling houses to the rich in Kensington and Holland Park. ‘When a house costs £3 million and you are paying four per cent stamp duty, it’s a big hit. You don’t pay that if you are buying a company, where the house is the asset.’
A common former ruse to avoid being financially burnt in a lawsuit or divorce was to set up an offshore trust in the name of your children, who also own your house. It could then be rented back to you and, if and when it was sold, there was no capital gains tax. But, in 1988, that all changed.
‘One of the first things the Labour Government did was change the attribution rule, so that children were treated as “you”’, says a top tax lawyer. ‘They also brought in a raft of other legislation, which made offshore trusts a lot less attractive for people domiciled on shore.’
Hence, the rise of the Monaco-London commuter – tax resident in Monaco, but works in the UK three days a week. Philip Green is a good example of this breed. There is also a growing army of Zurich/Geneva-London commuters, who manage to use a loophole in the 90 days tax domicile law to basically stay in London four days a week.
‘It’s the sort of thing young hedgies do,’ says a tax specialist. ‘They’re worried about obtaining English residence for tax. If you have an offshore residence, days of travel to the UK don’t count. So, if you fly in first thing Monday morning, leave Thursday and work Fridays in Monaco, then that’s about used up your 80 days. Of course, the tax man might get funny if you own a house here, so someone like that might not actually own a property in London, but just rent a service flat or live in a hotel instead.’
Helping plug the dam, if the floodgates burst, is another reason that people hide their money offshore. Many of the hedge funds are partnerships, with unlimited liability. ‘It’s called “asset protection”,’ said a trust lawyer.
‘Where one has personal liability, it makes sense to protect your money. And some people put their money at a distance from themselves, in case they get sued.’
A word of caution, however, to anyone eager to join the rapidly swelling ranks of the HNWs. While asset management advisers often have clients coming to them, asking for either advice or boasting about how their money is hidden, lawyers insist they cannot advise their clients on how to break the law.
And, when it comes to filling in one’s Form E – a 17-page form that details all financial disclosure in a divorce in the UK, any attempts to obfuscate or deceive the courts about one’s wealth can be very risky if exposed, and the court will issue severe financial penalties.
‘You have to swear on oath that you have declared all your assets. If you are lying you can go to prison, it’s a criminal offence, like tax evasion,’ says a top lawyer, who specialises in this area. ‘But some people are so obsessed about staying rich that they would probably prefer to go to jail. They just don’t care.’