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Wealth managers need to up their game in India to mitigate HNW investors' desire to channel wealth abroad, says GlobalData

As part of 2019 Budget, India has recently proposed to raise income tax surcharge on wealthy individuals and this is set to spur demand for offshore investments in the high-net-worth (HNW) space.

As part of 2019 Budget, India has recently proposed to raise income tax surcharge on wealthy individuals and this is set to spur demand for offshore investments in the high-net-worth (HNW) space. As a result, providing sound tax advice is paramount to mitigate investors’ desire to channel wealth abroad and avoid losing assets under management to offshore providers, says GlobalData, a leading data and analytics company.

Following the increase in surcharge, the effective peak income tax rate for super rich individuals earning above INR50m (US$729k) will increase to 42.7%, bringing it more in line with developed countries in the West as opposed to developing nations in the East.

GlobalData’s Global Wealth Managers Survey reveals that taxation is already a major concern for local HNW investors. Among the 24 countries surveyed, India ranks highest in terms of HNW demand for tax advice, with 98% of respondents describing demand as ‘quite’ or ‘very strong’.

Heike van den Hoevel, Senior Wealth Management Analyst at GlobalData, comments: “Tax efficiency is the prime reason why HNW investors hold wealth abroad. While the importance of this driver is decreasing in most countries in light of the numerous scandals that have shaken the offshore industry, it remains twice as important in India than globally.”

Despite the country’s capital controls putting a limit on overseas investments, GlobalData’s research reveals that 16.2% of Indian HNW wealth is booked abroad, which is comparatively low when compared to the wider Asia-Pacific region, but in line with the global average of 16.9%.

Heike concludes: “Given the importance of tax as an impetus for holding wealth offshore, this proportion is likely to creep up, with local wealth managers set to compete for a smaller pool of funds. To mitigate the need for HNW investors to channel wealth abroad, wealth managers will do well to up their game when it comes to the provision of tax advice. Being able to provide sound advice to help HNW investors reduce their tax liabilities in a legal manner – be it through the use of trusts, insurance policies, or other vehicles – is becoming increasingly important, especially as tax rates for the rich are becoming more and more punitive.”

Next Finance 11 July
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