Trying to play chess when your opponent is playing poker!

Since the second world war there has been a perhaps a somewhat idealistic focus on creating a “rules-based” world order. Whilst not perfect the international system did attain a fragile balance, imperfect but with a degree of predictability for decades.

The rules-based world was underpinned and shaped mainly by consensus amongst the more powerful nations in the established world order and had a predominantly western world view based on democracy and freedom of trade, led by the United States. With the breakdown of the old Soviet Union for a time there was a belief that the western democratic model would spread to unite the world with common values, this idealistic view was challenged as state autocracies and religious theocracies became more empowered and embedded in certain parts of the world promoting in many cases an anti-western world view.  

With an ever-growing world population, the demand for, and control of, strategic resources has become vitally important. At the same time there has been the impression that the old world (western) world order could now be challenged as the countries underpinning it, especially the US, were believed to be weakening.  

Emerging economies such a China looked to replace US influence with their own using the “Belt and Road” initiative to control resources and trade, backed with increasing military might. Russia sought to create relationships with other autocracies such as Venezuela, Iran and China and has physically tried annexation (as in Ukraine) to control resources and build influence. The old western designed rules-based system is now struggling to cope when other countries chose not to follow their rules.

The US, threatened by these emerging challenges and seeing the erosion of its own economy has seemingly started to act in its own interest – also ignoring the rules-based system when the President thinks they do not suit national interests.

Older democracies are horrified. Nothing is predictable now and anything can happen.

Following the self-interest route we have seen a tariff war, the US seeking control of the Panama canal (reversing the belt and road approach of China in this area), regime change in Venezuela (moving control of oil influence from Russia and China to the US) and now the Israel/US war conflict Iran (directly challenging its axis with China, Russia and India). A chess game played by the superpowers to seek power and influence has been kicked in the air by the US who are now playing poker.

Where does this leave the rest of us?

The British have historically been recognised as an international trading nation. For instance, they have been by far the largest group of expatriates in the United Arab Emirates and many of those entrepreneurial emigres have helped shaped the development of the DIFC, ADGM and other regional financial centres and businesses as they have grown in international stature. Up until recently it was estimated that there were some 350,000 expats in the gulf region. For many the Gulf was perceived as a stable, attractive and supportive location to be live and work and its growth seemed unlimited.  

The ripples of the war with Iran have shaken the world and is causing loss and of life and extreme poverty for the regions directly affected. For many expats there is now understandable concern that the conflict will spread, and this is causing them to change their plans with 100,000 Brits having left the region at the time of writing.

The expressions of defiance from the Iranian regime, and particularly the threat to world oil supplies risks further escalation.

Whilst the Gulf has always been attractive for British emigres, it has been seen as the destination of choice for many since the last UK election who feel that current Labour government policies are anti-business and success seems to be an ongoing target for increased taxes. Having planned their exit carefully many will have sold their businesses or UK assets looking to build an international life in the Gulf.  Many will have considered returning to the UK in time perhaps when they felt the business environment was more supportive bringing with them fresh investment and entrepreneurial expertise.

These plans are now in disarray, and whilst many would want to stay, if the current situation settles, for now they are having to return to the UK prematurely.  

The UK’s Temporary Non-Residence rules, affecting those who became non-resident for fewer than five full tax years and then return, can bring realised gains or extracted value (say from the sale of a business) back into charge in the UK.  There is a potential 60-day exemption from the application of this rule (FA 2013, Sch.45, para.22(4)) where a person returns to the UK due to exceptional circumstances, but this rule may not apply in the current circumstances. So, returning Expats don’t face the major worries and disruption of leaving the Middle East but also a large potential tax bill on their return.

One potential avenue for returning Expats would be to relocate, to the Isle of Man, as whilst being in the British Isles the Island is not part of the UK. Such a move might help the individuals (and firms regroup) and restructure and may be a step towards a further relocation but perhaps with assets held in a safe and stable location.

Many Isle of Man firms are looking to repatriate executives from Middle East offices and the IOM Government should take steps to assist these firms and individuals to achieve a frictionless move in these troubled and uncertain times.  

Apart from the Expat community local indigenous families and businesses are greatly affected by the regional conflict. Established families have often had a policy of risk diversification outside of the region to protect family wealth and this is likely to come into greater focus now. Here again the Island can be an ideal, safe and stable location for investment and holding structures until things settle down. Such structuring is an important safeguard especially to provide for future reconstruction, and I think the Island has a valuable role to play in this regard.

Finally, there are still many who are concerned about the direction of travel in the UK especially with the uncertainty around the May local authority elections. Some will be concerned about a further move to the left, with possible exit and wealth taxes mooted.  

The Island can be an optimal destination for those who don’t want to leave the British Isles but are concerned about the future of the UK.  

As the world becomes increasing unstable, stability and safety become more valued in these troubled times. Sometimes it’s better to sit it out somewhere beautiful, stable and safe like the Isle of Man rather than to try and play chess when others are playing poker!

‍