Asset Protection Structures

Asset Protection Structures

Our experienced specialist staff who are pragmatic, yet savvy in strategic tax planning can deliver focused innovative structures for clients wishing to structure their affairs in the most tax efficient way and to protect their assets.

Whilst there are many different types of structures, it is important that any structure is robust and is specifically tailored to clients’ specific requirements. Many firms who offer foundations and trusts do not have the experience or qualified staff to structure them correctly and therefore they are not effective. Our fees also include free on-going support.

Asset protection structures can be effectively used to mitigate taxes, particularly inheritance and wealth taxes. They can also be used to protect assets and wealth exposed to creditors or spouses.

As part of prudent planning by a solvent settlor or founder who seeks neither to defraud creditors nor leave their family impecunious, the use of Foundations and Trusts can provide a useful layer of protection.

Overseas companies with low effective corporate tax rates, no withholding tax requirements on payment of dividends, and access to international tax treaties, are used where trade or investment involve multiple jurisdictions. A trust or Foundation may form a holding company with one or more local subsidiaries. If there is no double taxation treaty between the local company and holding company, another company in a jurisdiction that has a suitable treaty may be interposed, subject to anti-treaty provisions. Dividends can then be paid to the holding company and onwards to the Trust or Foundation in a most tax efficient manner.

Many overseas companies are for trading or investment. It may be a SPV (Special Purpose Vehicle) to hold a single asset or carry out a transaction, or a trading company. Shares in such a vehicle would be normally held by a Trust or Foundation.

CGT (Capital Gains Tax) does not apply to a Principal Private Residence. However investment property is subject to CGT at 28%, although it is currently exempt for non UK residents. This is due to change in 2013. IHT will apply to non – domiciled persons if their personal estate in the UK exceeds £325,000. Holding property through an overseas SPV, whose shares are held by a Foundation can provide exemption. If a principal residence is held through an overseas SPV, HMRC can assess the occupiers as “shadow directors” and assess them on a benefit in kind. If a principal residence is held in this way, the occupiers should pay a market rent to avoid this.

A correctly structured overseas SPV that holds investment property in the UK can apply for Non Resident Landlord status allowing rental income to be paid gross without deduction of tax that would otherwise be payable.

Many clients who have an overseas registered company use nominee shareholders. These are viewed by most tax authorities as “bare trustees”, simply holding shares on trust for the beneficial owner to whom they are liable to account. In such cases the shares are still treated for tax purposes as if the beneficiary held them. This can be avoided by the shares being held by a Foundation.

UK law has a unique view of domicile. A person generally takes their domicile of origin from their father and that remains until an alternative domicile is adopted (domicile of choice). It is not easy to lose a domicile of origin and it takes some determination to acquire a domicile of choice. It is referred to as an “adhesive concept”. The concept of “deemed domicile” is only IHT related. Resident non-domiciles will be deemed UK domiciled for IHT purposes where they have been UK residents for 17 out of 20 tax years. Resident non-domiciles must settle non-UK  assets in an offshore Trust or Foundation before becoming deemed domiciled. Once settled such assets will remain excluded for IHT purposes, even after the settlor becomes domiciled.

A settlement requires the settlor to transfer the assets to the Trust or Foundation, who acquire legal ownership, which they hold on trust for the beneficiaries. It is for the trustees or Foundation council to make their decisions (in some cases regulated by statute) as to how capital, assets and income should be distributed. The settlor normally provides a letter of wishes in this regard, with a protector appointed by the settlor to ensure that his or her wishes are carried out. The settlor can be the protector but this is not advisable.

Trusts and Foundations offer great flexibility and can continue after the death of the donor or settlor and offer protection against legal action by parties unhappy with the distribution of assets. They can also be used for making charitable donations and gifts.

Writing a life policy into a trust or Foundation not only provides funds without probate delays, but also means that the funds will be outside the deceased’s estate for IHT purposes.

For UK domiciled clients there are a lot of planning opportunities available using trusts and Foundations to offset the effects of IHT.

It is not only minors that do not have the capacity to make financial decisions and a trust or Foundation can ensure the wellbeing of those incapacitated, particularly if they outlive other family members.

A trust or Foundation is also an ideal way to make gifts to minors as they can look after the capital or asset until the children are of an age to look after their own financial affairs.

A trust and in particular a Foundation can protect personal and business assets from creditor’s claims.

A trust or Foundation can avoid probate, which can result in a considerable saving of time and fees.

A further benefit of a trust or Foundation is privacy. A will is a public document and anybody can go to the probate court and review a will.

Whilst a lot of the above relates to UK residents and tax planning, particularly inheritance tax, we act for clients worldwide and can structure their affairs in the most tax efficient way depending on the jurisdiction in which they are domiciled.

We are pleased to offer a free consultation on how you may benefit from an asset protection structure. All discussions relating to clients are treated in the strictest confidence.