Benefits of setting up Offshore

Written by admin on May 11th, 2011

Everyone should consider such an option to ensure that hard earned wealth or at least potential wealth is or would be protected against unforeseen circumstances and is preserved not only for family but also for future generations. Life sometimes unexpectedly deals you a card so be prepared for it. Too late for those who thought that it could never happen to them, losing their hard earned wealth and causing them and their loved ones heartache and suffering. The question you have to ask yourself is can you afford not to protect your wealth, businesses or assets.  You owe it to yourself and your family.


Most wealthy individuals or high net worth families in the world have protected their wealth, businesses or assets offshore or have minimised risk by protecting at least part of it offshore.


A business can grow at a rapid rate and before you know it generate a healthy turnover with profits, only to realise that the business is unprotected. By then it could be costly to place necessary protection structures in place. But even if so, prevention is better than cure. Rather spend the costs to get the protection.


The only way to protect your wealth or part of it is through a trust. It could be through a onshore discretionary trust or an offshore discretionary trust. A trust is an arrangement where a person (the settlor) creates a trust and the trustees hold and manage assets (the trust fund) for the benefit of others (the beneficiaries). An offshore trust is a trust that is resident outside the your “resident country” for tax purposes. The residence status of an offshore trust is important because it determines how the trust and the beneficiaries are taxed in your resident country for income tax and capital gains tax. The resident status of a trust does not directly affect the inheritance tax in most cases.


As an example:

A settlor may benefit from a UK discretionary trust he has created but the assets given to the trust are treated as still belonging to him. He will pay tax on trust income as if it still belongs to him. This rule also applies if his spouse or civil partner or his minor children will benefit from the trust as beneficiaries.


Up to £1000 of a UK discretionary trusts’ income is taxed at 20% on rent, trading and savings and 10% on UK dividends from stocks and shares. Income over £1000 is taxed at 42.5% on dividends and distributions and 50% on other income. On the other hand, the income of offshore trusts is treated as belonging to a UK settlor for purposes of UK income tax where a UK settlor or his spouse or his unmarried minor children are beneficiaries of an offshore trust. This means that income tax is charged only at the rate of 20% on the first £37,400 , 40% on any further income (from 6 April 2010, up to £150,000 in total) and from 6 April 2010, 50% on income above £150,000.


In the event that neither a UK settlor, nor his spouse or civil partner nor his minor children benefit from an offshore trust, offshore trustees are only liable for UK income tax arising on UK source assets. UK bank interests and dividends from UK companies are exempt from income tax in the hands of the offshore trustees provided none of the beneficiaries is ordinarily resident in the UK. Offshore trustees are not liable for foreign income however beneficiaries are taxed when they receive a benefit from the trust. That could be any income relevant to the trust whether spent or distributed to the beneficiaries.


The benefit of an offshore trust is that no tax is paid on dividends received or distributions made like a UK trust which pays 42% tax on dividends received and distributions made. If the beneficiaries are either a UK settlor, his spouse or his unmarried minor children, they would be taxed for UK income tax purposes in accordance with the relevant rate applicable in the UK. For dividends received by the offshore trust, depending on the rate applicable to the UK beneficiaries, that would mean a saving of 10% on dividend income. UK trusts’ income over £1000 is taxed at 50%. Once again depending on the rate applicable to UK beneficiaries, that would mean a saving of 30% for income from the offshore trust of up to £37400 and 10% on income of up to £140000. No tax are payable in the UK in relation to certain beneficiaries of a UK settlor offshore trust.


UK trusts are also responsible for payment of capital gains tax if assets with an increase in value of more than £5050 are sold. The rate of Capital Gains Tax for UK trustees is 28% from 23 June 2010.  Beneficiaries aren’t taxed on any trust gains. Offshore trusts are not liable for capital gains tax. However the capital gains realised by offshore trustees are attributed in the case of a UK settlor, spouse or minor children beneficiary to the UK settlor on an arising basis.


Inheritance tax, the tax that you pay on your estate when you die, is payable by UK trusts when assets such as money, land or buildings are transferred to the trust. However it is only due if: the assets in the trust are valued above £325,000 for the 2010-11 tax year, the trust reaches a ten year anniversary from when it was set up, the assets are transferred out of the trust or the trust comes to an end; and when someone dies and the trust is involved when sorting out their estate.

If an individual gives assets away and still benefits from them inheritance tax is still charged on the assets when he dies as if I he had still owned them. In certain circumstances inheritance tax is not due on property located outside the UK.


So if you pay your taxes in the UK why not protect your assets at the same time offshore. There are tax benefits but the most important the protection you get. It could be used to fund other businesses with access to a broad range of international banks, private equity investors and funds offshore. It could borrow lend or provide guarantees or collateral. It would ideally be situated to expend your business globally. There are many ways in which an offshore structure could be set up for the particular needs of a client.


The choice of an offshore jurisdiction is equally important. The Islands of Guernsey and Jersey are excellent for business. Both Islands are widely recognised as two of the worlds premier international finance centres. Both islands have signed tax information exchange agreements with several countries including the UK.  English is the main language. It has a stable economy, excellent infra structure, modern laws, efficient legal systems and Courts. The regulatory bodies are the Guernsey and Jersey Financial Services Commission and there location is very central and easily accessible from the UK.


For many decades, these jurisdictions have provided a stable platform for global international businesses to prosper and grow, to have access to a wide variety of international lenders, institutional and individual investors, to raise capital, whether by private equity or public and being able to operate in the Greenwich Mean Time zones. A number of Companies listed on the London Stock Exchange, the Alternative Investment Market or other Recognised Stock Exchanges have their incorporation in either Guernsey or Jersey.


Everyone’s needs and tax consequences are different and should always take professional advice. The information in this article is for information purposes only and advice should be taken on each and every proposed transaction or structure.

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