Nearly three months after the UK voted to leave the EU, Brexit’s uncertainty continues to influence all aspects of the global economy. WealthInsight’s Oliver Williams takes a look at how Brexit may affect wealth and high net worth individuals (HNWs).
In order to help private client advisors deal with the bombardment of questions from fretting clients, WealthInsight has looked into the impact that Britain’s vote to leave the EU has had on HNWs both at home and abroad. Below are some of the themes that we’ve identified.
Most HNWs are recovering their wealth
With 14.3 per cent of HNWs in the UK owing their wealth to the financial services industry, the direct fallout of Brexit was catastrophic. Bloomberg reported that 15 of Britain’s wealthiest individuals had lost $5.5bn, while few HNWs were immune to currency and political turmoil in wake of the vote.
Three months on and such losses have largely been recouped: The FTSE 100 recovered after just two trading days, while the more domestic FTSE 250 was back to normal just over a month after the vote. Beyond the London Stock Exchange, much post-referendum data has deviated little from pre-referendum indices.
As for Britain’s wealthiest fifteen: they have had a somewhat bumpier ride following the vote but not as a result of it. The death of the late Duke of Westminster saw one of the largest inter-generational wealth transfers in British history (the value of Grosvenor Estates having grown exponentially under the previous Duke’s tenure which paralleled rising property prices). Mike Ashely and Sir Philip Green’s fading fortunes have nothing to do with Brexit and everything to do business mismanagement. The few likely to benefit from Brexit are those who voted for it: Sir Anthony Bamford and James Dyson will likely see heightened exports of diggers and vacuums off the back of a weak sterling.
In another seemingly non-Brexit development, the Treasury have published new guidelines dictating that non-domiciled individuals will have to pay inheritance tax from April 2017 on UK residential property held through trusts or holding companies. This development raises age-old questions over a potential capital-flight from the UK as non-doms flee tightening tax structures for sunnier tax havens.
Swathes of residential London are held through such structures, despite a tax penalising offshore ownership introduced in 2013. Whether or not it causes non-doms to sell up and move overseas can only be measured in the long-term, however, the message of these guidelines is clear: Brexit Britain will not be following the ‘Monaco-model’ anytime soon.
The Rush to Zone 2, and beyond
London’s enclave of the wealthy, central prime London has not being fairing so well post-referendum. Data from Knight Frank reports that the average house price in central prime London has dropped by 1.8 per cent over the year, despite an increase of viewings of nearly 50 per cent after the vote. For foreign HNWs, who have been the traditional customers of central-prime property, there is new property on the block: London’s outer zones and commuter cities such as Brighton and Bath.
Several multi-family offices have started investing in such areas, citing better returns than Central London and avoidance of higher stamp duty. In early September, one of London’s biggest residential developers, St George, hosed a ‘Post Brexit London Property Market and Currency Update Seminar’ in Singapore while showcasing newly built two and three bedroom apartments in Hammersmith and Ealing Broadway – far from the wealthy enclaves of Knightsbridge and Mayfair.
Number of new HNWs continues to grow
WealthInsight’s HNW forecast maintains that the number of HNWs in the UK will grow 0.8 per cent in 2016 after declining 0.5 per cent in 2015. While most of these new HNWs will call London home, there is evidence of de-centralisation underfoot, with at least five cities – Birmingham, Glasgow, Leeds, Liverpool and Reading – adding at least one percentage point to their HNW numbers. This is backed-up with data from Barclays that reveals the number of ‘millionaires’ in Eastern England increased by 13.2 per cent and in the South West by 8.1 per cent. It is interesting, though perhaps un-correlative, to note that both the majority of South West and Eastern England voted to leave the EU, while London voted to remain.
With an average portfolio allocating 12 per cent of HNW investments to North America, HNWs will be anticipating the next big democratic shock to their savings: November’s US presidential election. Though the Republican candidate supported the Brexit vote (and recently sent a tweet: ‘They will soon be calling me MR. BREXIT!’), the CIPS – which charts political and economic risks to global trade – has peeked in anticipation of a Trump victory, while the Economist Intelligence Unit said a Trump victory was one of the top 10 risks facing the world in 2016. Many HNWs will be seeking to hedge their portfolios accordingly.
HNWs will continue to come to London
Whatever the outcome of Britain’s negotiation with the EU, it will not diminish the ability of London to lure wealth (as reported by Spear’s and WealthInsight last month, it currently has more UHNWs than any other city in the world). London’s superior education standards and quality of life will continue to be as much an appeal to migrating HNWs as its financial prowess. The capital’s rule-of-law judicial system is already being used by foreign billionaires to settle disputes in their home countries, while its world class culture and education attracts many wealthy families. With resident business leaders, London’s financial sector will maintain its place both in UHNW rankings and among financial capitals.
Lighter regulation could benefit some HNWs
The bonus-cap may be one of the more symbolic pieces of regulation imposed on the City of London – and HNWs – from Brussels. However, other areas of finance many benefit from lighter regulation as Brussels’ laws are replaced with Westminster’s. One example is the Alternative Investment Fund Managers Directive (AIFM), which affects hedge funds, private equity, real estate and other alternative investment fund managers. According to Deloitte, most UK-based asset managers think AIFM reduces the competitiveness of the EU’s alternative investment funds industry, while Open Europe thinks that it costs the UK £1.3 billion a year (based on 2014 estimates).
SMEs and other non-financial industries – from fisheries to farming – may also benefit from a lighter regulation, though any immediate changes are unlikely.
Brexit Boom for Bordeaux
Finally, a combination of investor sentiment towards safer assets and a weaker sterling heightening overseas demand has seen a surge in fine wine prices. The Liv-ex – the main exchange for investment-grade wine – is up 19 per cent so far in 2016 and has witnessed something of a ‘Brexit Boom’ since the referendum. According to a survey by fine wine investment firm Cult Wines, 27 per cent of wealth managers and independent financial advisors (IFAs) expect wine investments to become more attractive in post-Brexit Britain.
While that may be good news for oenophiles, regular consumers will be paying more for their Barolo, Burgundy and Beaujolais (not to mention champagne) as a weaker pound pushes up the costs of wine imports. The cost of celebrating or commiserating post-Brexit may currently be the vote’s biggest impact on HNWs.