In a statement on 7 January the government said investments made through an eligible private company wholly owned by an applicant and assets of family members will be counted towards the new Capital Investment Entrant Scheme starting from  1 March 2025.

The already established scheme, which has seen 240 successful applications in its first 10 months from 1 March 2024, requires people to invest HK$30m to obtain residency.

The secretary for financial services and the treasury, Christopher Hui, said: “The New CIES has attracted high-net-worth individuals, business elites and innovative entrepreneurs. Since the launch of the scheme, we have been liaising closely with the industry and are continuously working on further enhancements.

“The enhancement measures announced today have not only relaxed the net asset assessment and calculation requirements but also allowed investments made through an eligible private company wholly owned by an applicant to be counted towards the eligible investment.

“We believe these measures will encourage more investors to join the scheme and can create synergy with the tax concession regime for family offices, thereby promoting the development of family office businesses in Hong Kong.

“We are committed to providing comprehensive support for family office decision-makers to establish themselves in Hong Kong, further attracting global asset owners and reinforcing Hong Kong’s leading position as an international asset and wealth management hub.”

The director-general of investment promotion, Alpha Lau, said: “The number of applications for the New CIES in the first 10 months has exceeded the number of applications received for the same period under the previous Capital Investment Entrant Scheme, which was launched in 2003.

“This reflects the strong confidence of investors in Hong Kong. I trust that these measures will enhance the attractiveness of the scheme. We will continue to work closely with professionals and service providers to further promote the scheme to high-net-worth families around the globe.”

Details of the enhancement measures and the status of applications under the New CIES are set out below:

1. Enhancement measures with effect from March 1, 2025

(a) Fulfilment of net asset requirement (NAR)

(i) An applicant under the New CIES is only required to demonstrate that he/she has net assets or net equity to which he/she is absolutely beneficially entitled with a market value of not less than HK$30m net throughout six months (two years before the enhancement) preceding the application; and

(ii) Net assets or net equity jointly owned with the applicant’s family member(s) can now be taken into consideration for the calculation of the NAR for the respective portion which is absolutely beneficially entitled to the applicant.

(b) Holding permissible investment assets through a Family-owned Investment Holding Vehicle (FIHV) or a Family-owned Special Purpose Entity (FSPE) under an FIHV

Investments made through an eligible private company wholly owned by an applicant will be counted towards the applicant’s eligible investment in the New CIES.

An eligible private company refers to a holding company incorporated or registered in Hong Kong which is wholly owned by an applicant in the form of an FIHV or an FSPE under an FIHV managed by an eligible single family office as defined in Section 2 of Schedule 16E to the Inland Revenue Ordinance (Cap. 112).

“The enhancement will create synergy between the New CIES and establishment of family offices in Hong Kong”, the statement said.

MENA-focused Octagon with headquarters in the UAE, has operations which extend across Europe, Asia, North and South America, and Southern Africa.

The statement on 25 July followed several months of ‘soft launch’ activity in the UAE, by Octagon, and rapid “word-of-mouth growth for its innovative suite of services”.

Octagon said it catered to all family office needs – for established and newly incorporating entities – with services including asset management, corporate services, business management, business development, and lifestyle (Real estate, education & health, other services).

It further said there are now over 15,000 family offices worldwide holding c. $5.9trn in assets and both Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) had enabled registered financial institutions, companies and entities to operate and succeed within international regulatory frameworks.

Ekaterina Chernova, co-founder at Octagon, said: “I am thrilled Octagon has entered the UAE market – a country rapidly becoming a global hub for Family Offices. The current market environment is compelling, and word-of-mouth seeking our services has been very powerful.

“Modern families – wherever they are in the world – are increasingly drawn to the UAE and want innovative advisors and services. Our Family Office as-a-Service model has been very attractive to them – being able to resolve their complex needs. We are excited to contribute to the UAE’s growth story and help our clients navigate the challenges of running a Family Office, managing their wealth and saving them valuable time.”

Andrei Marcenco, co-founder at Octagon, said: “I am delighted that Octagon has entered the UAE market, a region swiftly establishing itself as a global centre for Family Offices, at a time when their need is evident worldwide.

“Following a successful soft launch, we have already seen strong demand for our diverse range of services, including Asset Management, Corporate Services, Business Management, Business Development, and Lifestyle services. We look forward to contributing to the UAE’s growth story and helping our clients manage their wealth and save precious time.”

Octagon’s co-founder, Ekaterina Chernova has over 20 years’ experience in private equity, corporate finance, strategic planning, and multi-family offices.

Ekaterina is an alumnus of Harvard Business School; a Dubai Business Women Council Member; a former Senior Consultant at PwC, and a member of YPO – the global leadership community of over 35,000 extraordinary CEOs.

Octagon’s co-founder, Andrei Marcenco, began his career at Deloitte and has spent over 20 years in the financial services industry. He has held various corporate finance roles with leading investment banks. As an investment professional, he was part of a team managing a ~$3.5 billion AUM investment group, focusing on direct investments in public and private companies.

The 55-year- old will assume the position of head of family office at Lennertz & Co.

Uebele began his career at Commerz Finanz Management, a former subsidiary of Commerzbank, and then moved to UBS Switzerland’s Wealth Management in Zurich and St. Gallen from 2005 to 2011. He subsequently became the branch manager for the German multi-family office Five Minds AG in Switzerland. In 2013, he moved to Hamburg as a senior family officer for the multi-family office Kontora, where he primarily worked in strategic consulting for large families and foundations.

Other career stations include leading the newly opened Hamburg office of the asset manager Feri in 2019, and from mid-2020, serving as CFO at the start-up Tegus Medical. Since July, the graduate economist and EBS financial economist has been the head of family office at Lennertz & Co.

“Achim Uebele joins our team as an experienced Senior Family Officer, bringing over 30 years of experience in advising wealthy entrepreneurial families and the necessary expertise in financial planning as an EBS financial economist and long-time Certified Financial Planner,” said Philipp Lennertz, managing partner of Lennertz & Co.

Last year UK entrepreneurs made £11.8bn by selling their businesses, and that was despite economic challenges, compared with previous years where it’s been more than 60% higher, releasing £29.1bn. Once a typical entrepreneur has built a successful business, they may sell part or all of the company to focus on other opportunities and this realised cash is in the bank – how then do they manage their wealth?

Often, the issue is approached as a family household, with two parents usually in their 50s or early 60s and children perhaps in their 20s. The two most common objectives for them are to protect capital while ensuring multi-generational legacy, and for the entrepreneur to retain control over how that objective is achieved.

Seven-year gift as a last resort?

Despite these clear objectives, many families are under the impression that gifting a sum at this stage – when they feel likely to live out the requisite seven years for the financial gift to be Inheritance Tax-free – is the smartest option.

This could be riddled with potential drawbacks though; from inflation risk to loss of control over the ‘gift’ sum when a child marries or divorces, to sibling squabbles when an older child invests in property and reaps asset appreciation, but a younger sibling feels disadvantaged when property prices have moved ahead of their ‘gift’ sum.

In fact, gifting a lump sum may not achieve either key objective of retaining control or creating legacy wealth. Sometimes, it can mean the entrepreneur has diminished the capital sum through gifting to an extent that, calculating for the rest of their life, they don’t have enough money left to live as they wish.

Family Investment Companies (FICs)

There are alternatives for those with, say, £2m or above to invest: Family Investment Companies (FICs). These are a company wrapper, which entrepreneurs are familiar and comfortable with, they provide a flexible and tax-efficient vehicle whereby different share classes can be allocated to different beneficiaries, and control retained by one share class (held by the entrepreneur). Put simply, it sets the ground rules for a shared understanding of how the wealth will be managed.

Within an FIC structure, corporation tax is payable on its income and capital gains, however:

• Dividends received by the company are tax-free in most cases.
• Through careful structuring, there is the potential that an increase in asset values can be outside the individuals’ estates for IHT purposes.
• Funds can be released from the FIC through dividend and salary payments to shareholders to make use of their available personal allowances and basic rate bands.
• FIC loans are a good way of freeing capital to shareholders without requiring the seven-year IHT rule. investment management fees – paid based on a percentage of assets basis – are tax-deductible for FICs, which they are not for individuals.

FICs have become increasingly popular since 2006 regulations made trusts less attractive. HMRC, having stress tested FICs, and confirmed they have not been used for widespread tax avoidance, effectively giving these structures the all-clear for mitigation of IHT through multi-generational wealth planning.

In terms of multi-generational wealth, it’s notable that trusts have a ‘lifespan’ of 125 years whereas the FIC structure can last in perpetuity. Indeed, we have come across FICs that have been multigenerational since the early 1900’s.

Capital preservation beats risk appetite

While entrepreneurs are renowned for a higher risk appetite, in our experience once the business is sold this appetite is satiated; the focus switches to capital preservation and income-generation. Entrepreneurs tend to keep higher-risk private equity investments separate. All FICs we manage are invested in a diversified array of asset classes and geographies in line with the clients’ objectives.

Money can be a great enabler, but, if carelessly handled, can have a detrimental effect on relationships. We advocate bringing the whole family – or main beneficiaries – together prior to formalising an FIC. The process can be a valuable tool for preparing younger generations of beneficiaries in the psychology of wealth.

As the first generation of beneficiaries matures, multiple FICs can be created for different family households. This allows for each household to reflect their own investment values, risk appetite and for us to manage their portfolios in line with this, all within an investment structure constructed by tax experts, that they are familiar with.

Edd Hollier is senior director & investment manager at EFG Harris Allday and Phil Pellegrini is taxation partner, private clients at Dains Accountants

What is more, as James Pereira-Stubbs, chief client officer at Oxford Risk, asserts, this is not “a question for another day”. “The intergenerational transfer of wealth in the Middle East is happening now and we expect it to continue for the next 10 years or so,” he continues. “As you would expect, the younger generation is taking over the entire management of the family finances either because the older generation has retired or passed away.

“More and more commonly, however, we are seeing the older generation bringing their children into the relationship with their wealth manager or financial institution as a sort of apprenticeship, leading up to the complete transfer of responsibility. It is important that wealth managers recognise this trend and engage the next generation appropriately.”

One example of how this transition is manifesting is in a growing focus on impact investing and environmental, social and governance (ESG) considerations – as highlighted by Ocorian in its Family offices and the role of third-party service providers report, which resulted from canvassing more than 130 family office professionals responsible for some $62bn of assets under management, including 30 respondents based in the Middle East.

‘Exciting trends, new challenges’

“Younger family members are starting to take a different approach to parents and grandparents, with the switch to ESG investing the biggest change, along with a desire for family businesses to become advocates of ESG and sustainability in general,” says Lynda O’Mahoney, global head of business development – private client at the trust, administration and fiduciary services provider. “These new trends are very exciting but can also bring new challenges, such as ensuring investments are achieving target returns as well as the desired ESG credentials.”

According to Pereira-Stubbs, Middle East investors tend to be most interested in the environment aspect of ESG, with social elements second and the least amount of interest reserved for governance considerations. “To take this a level deeper we do not see a real differentiation in the United Nations’ sustainable development goals [SDGs],” he continues.

“Investors tend not to have a clear preference for any one SDG – rather individual investors express a variety of interests across all the SDGs. This makes the job of wealth managers and financial institutions more complicated as they need a robust assessment of what their investors care about, alongside the ability to match an investor to the right products within their portfolio.”

Domestic structuring

Another shift identified by Ocorian is a significant rise in the use of foundations for domestic structuring. Traditionally, family offices and high-net-worth individuals in the Middle East holding assets overseas have not structured these domestically but that is now changing, the firm argues, with more than 1,600 foundations set up in the UAE alone.

“The DIFC, ADGM and RAK ICC foundations regime allows for the transfer of the ownership of assets from ‘own name’, enabling the flow of wealth across generations and the continuity of family businesses,” says O’Mahoney. “This increase in domestic structuring highlights a growing awareness around the need for asset protection and financial security, as well as heightened sophistication around the governance of family offices.”

Overall, wealth managers are noticing important differences in the way younger generations wish to be served. Key among these include the idea that a digital offering is less a luxury than a necessity – with younger clients expecting to enjoy 24/7 access to their wealth management platform – and a greater focus on holistic wealth management.

“The parents have taught their children well, with the younger generation exposed to greater financial education opportunities,” says Pereira-Stubbs. “For wealth managers, this requires a much more robust portfolio construction covering all asset classes and a much better understanding of what the investors want, with more robust assessment tools.

“There is also more scepticism of active management and interest in private asset classes and, in general, the younger generation wants a greater alignment between their values and their investments. This places two requirements onto wealth managers – they need to really understand what their investors care about and they need to build out their product shelves to provide a much more robust ESG offering.”