In recent years, the UK government has tightened their grip on UK based assets, but there are still advantages to placing assets in an offshore trust. A trust is essentially a holding vehicle for assets that will at some point in the future, transfer to a beneficiary.

A trust fund is a great way to minimise tax obligations by refraining from paying tax on cash assets that the UK government has no claim on. Although there are less tax advantages to holding money and assets offshore than in the past, there are other reasons that make a trust held offshore attractive to people who are planning to transfer their estate.

Inheritance Tax Benefits

There are different benefits for people who are resident in the UK, but non-domiciled. 'Non-doms' are able to transfer (settle) non-UK assets to a trust without paying inheritance tax. This is particularly relevant to British ex-pats who have an estate in countries other than the UK. Non-domiciled status is achieved by living outside the UK for three years, but you need to inform HMRC of your intentions to be classed as a non-dom.

Capital Gains Tax

Where assets from outside the UK are settled offshore, there is no capital gains tax to pay. If the beneficiary of the fund brings receives the assets in the UK, they will become liable for tax on the amount, but where assets remain offshore, they will continue to be tax-free.

Income Tax Deferment

There will be income tax payable on funds drawn from offshore trusts, but paying tax on gains acquired offshore can be deferred until beneficiaries receive the funds. This allows funds to grow without taxation slowing growth. There is no requirement to bring the fund into the UK, so the beneficiary may never pay income tax on the amount. If they become non-domiciled at some point in the future, they may never need to pay income tax on the funds.

Forced Heirship Laws

Some countries have forced heirship laws. This means assets pass to family members when the owner of the assets dies. England and Wales honour the wishes of the deceased, but other countries including Scotland, have laws, which allow the will to be contested. Property in France and Spain may need to be sold by the deceased's spouse to comply with inheritance law. Where assets are placed in an offshore trust, trustees can act as the settler instructs.

Consolidation of Assets

This is an overlooked benefit, but one that may be more important than all others. Wealth management is much easier with centralised reporting of assets located in many different investment vehicles. Offshore trusts can hold shares and stocks, investment portfolios and real and intellectual property. Any life policies can be included and this can result in a much more tax efficient transfer of assets to beneficiaries.

 

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