Offshore Tax Planning
For overseas companies, offshore trusts have had any tax benefits for UK domiciled individuals severely eroded by anti-avoidance legislation in recent years.
An offshore trust is a trust that is managed offshore by trustees who are not UK tax resident. Offshore trusts are exempt from UK income tax on foreign income. Holding offshore investments in the trust could avoid a UK income tax liability.
There are provisions to attribute income to UK resident individuals if they transfer assets to an offshore trust and have the power to enjoy or benefit from the trust. Therefore, to avoid being taxed directly on the income of the trust the settlor would need to ensure that both they and their spouse are excluded from benefiting from the trust. A key exception to this if the trust was established without tax-avoidance as a motive.
If the trust holds non-UK assets and was established by a non-UK domiciliary, it is an excluded property trust, and so it would be outside the scope of the UK inheritance tax discretionary trust regime.
Offshore trusts created by a UK domiciled individual, however, are subject to the same inheritance tax rules as UK discretionary trusts, i.e. subject to 10 year tax charges and exit charges on payments out of the trust.
The non-resident trust would also be outside the scope of UK capital gains tax, unless it held assets used in a UK trade or, since April 2015, UK residential property. However, gains of an offshore trust are attributed to UK resident settlers if the settlor or their spouse, their children, children’s spouses, grandchildren and grandchildren’s spouses are actual or potential beneficiaries of the trust.
Specialist Offshore Tax Planning
If you would like more information on the benefits for you of an offshore trust or help with offshore tax planning, please contact Tax Innovations on 01962 856 990 or firstname.lastname@example.org.