Q: Are offshore trusts still an attractive structure following the changes in the Finance Acts of 20...
Q: Are offshore trusts still an attractive structure following the changes in the Finance Acts of 2008 and 2006?
A: The current UK Government views 'tax avoidance' as the primary motivation for creating a trust; but is this fair? It is all very well to focus on the tax advantages of offshore trusts, but to look at them in isolation and fail to acknowledge the outnumbering non-tax advantages distorts the bigger picture.
Whether you are completely in the UK tax net (i.e. UK resident and domiciled), a UK resident non-dom or a non-dom resident abroad but with assets located in the UK, then there will always be non-tax considerations behind the creation of a trust, be it offshore or onshore.
For example, trusts can provide an umbrella structure that consolidates worldwide asset ownership into a single entity in one location, and ideally one where the trustee suffers no tax - i.e. a 'tax haven'.
They can also offer assistance with succession in terms of the transfer of wealth in a tax-efficient and timely manner, avoiding significant amounts of funds passing into the hands of individuals who are too young or too inexperienced to cope.
Another benefit is asset protection from economic, political, family and business uncertainty and more specifically from divorce, bankruptcy and seizure against the settlor (the creator of the trust) or against a beneficiary.
Trusts can also provide a solution to the difficulties in obtaining probate (or its equivalent) in multiple jurisdictions, since the trust is an ongoing entity and the assets do not form part of an individual's estate for probate purposes (although they may for tax).
From a legal perspective, trusts offer a structure that is a more widely recognised solution to tax mitigation, wealth management and succession planning when compared with foundations, stiftungs and anstalts, due to the trust being a common law concept that has evolved since the Middle Ages and is recognised in all common law jurisdictions and in an ever-increasing number of civil law jurisdictions;
They are also useful as a means of avoiding the consequences of forced heirship or Shari'ah law in jurisdictions such as France, Saudia Arabia and Japan, where children have an automatic right to their parents' estates.
Furthermore, a trust offers confidentiality and privacy for both the settlor and beneficiaries, as the trust deed is not a public document (as opposed to a UK will) and particularly since HMRC has withdrawn its recent proposals of compulsory disclosure of offshore trusts.
A few other examples of the uses of trusts include:
- organisation and centralisation of the administration and the financial reporting of family wealth;
- trustees who act in the best interests of the beneficiaries perhaps at times when the latter themselves cannot due to spendthrift, addiction or undue pressure from third parties; and, finally,
- a corporate solution with regard to employment benefit and insurance plans, retirement and stock option schemes, and special financing arrangements.
The idea of trusts being used by the rich simply to 'dodge' tax is inaccurate and unhelpful. Trusts are a legitimate and practical means of organising one's personal and corporate wealth in a tax-efficient and protective manner; arguably something which we all aspire to achieve whatever the level of our net worth.
- Camilla Vivian, solicitor at Wedlake Bell.
£1bn business since inception
Considered doing so in 2015
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