East meets west

The British-Indian community offers an exciting and promising outlook. The next generation is striving to meet the expectations of their predecessors. But the greater wealth, education, geographical mobility and spread, and sophistication of the community present both challenges and opportunities for the professional adviser.

British Indians are perceived to be socio-economically affluent. A study by the Joseph Rowntree Foundation (Inequality within ethnic groups, May 2011) found they have among the lowest poverty rates across all ethnic groups in Britain. Education and skills are highly respected and desired, and this is effectively a ‘way of life’ that has been long-standing for a number of generations. Coupled with the famed Indian entrepreneurial spirit, British Indians contribute significantly to the UK economy.

The 1960s and 1970s saw an influx of Indians to the UK (as a result of various political and economic factors) with a significant proportion of the immigrant community deciding to continue being shop owners. This was driven as much by necessity as by choice, given that many had professional qualifications but were not able to get on the first rung of the employment ladder. This first generation of Indians to come to the UK had one goal: to achieve financial security for their family. Generally, they achieved this by striving to buy their own homes and developing their businesses, often with other family members, while making sure that their children acquired as good an education as they could afford.

Now, the emphasis on education manifests itself in a significant number of Indians practising medicine, dentistry, pharmacy, law, accountancy and finance. The family businesses have also evolved from running predominantly corner shops and petrol stations to a wide range of industries including retail, manufacturing, hospitality, care homes and finance. Whether it is professional or business, education remains a core value and obtaining a degree is an important rite of passage. Those joining the family business usually have at least a degree; many choose to gain professional qualifications and experience to take back to the family business.

The formerly frowned-upon creative industries, such as acting, modelling and music, are still less common, but parents are more willing to embrace these choices. This trend may be explained by the British-Indian community’s overarching desire for financial security and stability.

Historical ties with India and Africa remain deeply rooted both from a philanthropic and business perspective. Although British Indians are predisposed to investing in these regions, they are increasingly showing an interest in investing more widely into Europe, Australia, the US, Canada and emerging markets.

Mobility and spread

The earlier generation’s willingness to migrate from India to the UK, or from India to East Africa and then to the UK, makes British Indians more open and flexible when it comes to determining where to live and work. Although the UK remains the core base, British Indians are happy to move if opportunities dictate. It is not uncommon to see one family spread over two or three continents. Aside from issues connected with migrating, advisers must consider the tax and ?legal issues, including wills and ?probate, arising with owning assets in multiple jurisdictions.

Pooling wealth

Indian families have traditionally pooled their wealth, which is one area that no doubt causes some challenges for professional advisers. Properties and assets are perceived to be owned by ?the family as a unit, irrespective of ?the name that may appear on the ?legal documents. The lack of clarity on being able to accurately identify rights and interests has interesting ramifications in areas such as taxation and litigation.

In the UK, direct taxes are generally assessed on beneficial owners of assets and therefore taxing rights become difficult to ascertain when it is unclear who is the individual beneficial owner of an asset.

Similarly, pooled ownership makes it more difficult to allocate assets following matrimonial breakdown, family disputes or succession battles. At the same time, the incidence of family disputes has increased, not least because of the greater awareness of rights as a result of the higher average level of education in the family.

Ownership structures

Historically, little consideration has been given to the structure through which family assets were owned and family businesses were operated. Many of the original businesses operated on trust between different members of the family with little attention being paid to identify interests of the various stakeholders or evaluate their particular contributions. External management ?(that is, non-family members) was rarely seen at board level. There was, and usually still is, often no distinction between roles as officers and employees of the business, roles as shareholders and roles as family members.

However, things are changing. ?There’s increasing recognition that ?the lack of conscious thought given to the business structure or lack of appreciation of external skills might be limiting the growth of their businesses. In part, this might be driven by professionally qualified family members joining the family business after having worked externally.

Businesses are also recognising that family wealth may be maximised by selling the business to third parties rather than passing the business down to the next generation, who may lack the skills to run or grow the business. Therefore, a greater proportion of British-Indian businesses are open to external investment or purchase than has been the case.

Asset protection and domicile

A distinguishing feature of the British-Indian community (in common with some other ethnic communities) is its focus on passing wealth down the generations. Given the wealth being amassed, the community is increasingly looking at asset protection and succession, including improving the tax efficiency of passing wealth down the generations. Issues such as shareholder agreements and even pre-nuptial agreements are less likely to be considered as taboo subjects.

Given that a number of British Indians do not consider themselves to be domiciled in the UK, their asset-holding structures often include offshore trusts and companies. Ascertaining domicile can be a ?complex area for advisers, for instance whether the family has acquired ?a domicile in Africa on their way ?from India to the UK.

Entrepreneurial spirit, confidence, family unity and a thirst for success has enabled many British Indians to progress in the UK and sit among the top entrepreneurs. For professional advisers, it is necessary to understand what drives British Indians and what issues they face, as these may differ from those that are relevant for other entrepreneurs.

Dipan Shah is a tax director and head of the Asian Business Forum at PwC