The collapse of the Robert Gaines-Cooper case could see high net worth individuals flock to Qualifying Recognised Overseas Pension Schemes (QROPS) in a bid to dodge the taxman.
"Multi-millionaire entrepreneur and Seycelles resident Gaines-Cooper was liable to pay UK tax despite spending less than 91 days a year in England because the country had remained "the centre of gravity of his life and interests", the Court of Appeal ruled in a landmark case this week.
AdvertisementThe decision is being described as the "thin edge of the wedge" for HNW individuals, but they could help protect themselves from HMRC's ire by moving pension assets out of Britain using QROPS.
"UK pensions can be neatly moved to a QROPS scheme and in addition to the many benefits people have over remaining in the UK scheme, for those who have moved abroad there is now the added advantage that it moves a major asset out of the UK," Tim Parkes, director of Carey Pensions and Benefits, says.
Advisers have seen a sharp uptake in interest in QROPS in light of the Gaines-Cooper case.
But specialist QROPS advisers are warning people to beware overseas advisers who make undeliverable promises.
Geraint Davies, managing director of Montfort International, who helped draft guidance on QROPS with the Personal Finance Society (PFS) says: "The facts are you do not have to be a non-UK resident for five years to access QROPS but you do to permanently remove any of the restrictions which exist under UK tax legislation."
"Even then individuals will be subject to the tax regime of the territory of residence and all other areas in which the person has lived."
In addition, he says QROPS are only tax-neutral where the country of residence has been checked by the recommending adviser and there are no tax liabilities levied on unrealised gains or distributions out of the scheme.
"The issue is there is too much advice on QROPS coming from providers and advisers have little experience dealing with the tax regimes of other countries. Plus some unscrupulous overseas advisers are making substantiated claims."
FSA guidelines on QROPS states: "Any adviser who fails to take into account all current material personal circumstances and future plans is failing to treat the customer fairly."
Author: Laura Miller
http://www.ifaonline.co.uk/international-investment/news/1592723/gaines-cooper-prompt-migration-qrops
Friday, 19 February 2010
QROPS Advice: Investment News: Spotlight on Japan
Anybody that has followed global markets over the past 20 years will know that the root causes attributable to the recent financial crisis are by no means new. As recently as the early 1990s, the world's second largest economy, Japan, was in meltdown as a direct consequence of a 'bad debt' issue, caused, in part, to overly-relaxed lending practices by its local banks. This lending fuelled a property bubble which was unsustainable (resting, as it did, on unrealisable land values), turning many debts bad. This ultimately resulted in many banks having to be bailed out by the government, a very familiar story of late...
The fall-out of the catastrophe was appropriately named "the lost decade", owing to the lack of economic activity that followed in the region. As with technology stocks that famously failed in the late 1990s, Japan became massively out of favour with investors, as the value of the local stock exchange spiralled ever lower. Both local market participants, as well as foreign investors have had relatively little exposure to Japanese equities ever since, with many not appreciating the substantial turnaround in Japanese corporate fortunes, as a deeply unloved and under-owned asset class.
However, indicators suggest that Japan is once again returning to favour. It has been a promising start to the New Year for Japanese equities, with foreign investors piling into the market, buying a net USD17.3bn worth of stocks in January alone, the largest monthly purchase in three years. That compares with a net outflow of foreign money in the rest of Asia of USD3.35bn, according to data from Nomura. Japanese machinery orders rose the most in nine years from a record low, and 'domestic orders', an indicator of business investment in the next three to six months, climbed 20.1 percent in December from a month earlier.
Again, as with Technology company valuations, the lessons learned from 'the lost decade' have prepared many of Japan's leading companies for a promising future, with extremely healthy balance sheets and price earning ratios reflecting excellent value when compared to stocks elsewhere.
Whatever your view of the Japanese economy as a whole, the fact remains that Japanese firms still dominate and lead many global industrial sectors from autos, via specialist materials and capital goods to consumer items, e.g., from Suzuki to Nintendo. Therefore as the global economy regains its composure, Japanese firms should disproportionately benefit from their geographically well diversified sales base, particularly their exposure to the BRIC countries.
Looking ahead for Japan, Chris Taylor of Neptune Investment Management, commented "We expect improved corporate earnings from the global companies that have little dependence upon the domestic economy. They will be helped by their substantial exposure to non-OECD economies which will continue to expand strongly, contributing about two-thirds of likely global economic growth. The combination of these factors should see such Japanese firms collectively turn in the highest prevailing rate of earnings expansion across the globe."
The fall-out of the catastrophe was appropriately named "the lost decade", owing to the lack of economic activity that followed in the region. As with technology stocks that famously failed in the late 1990s, Japan became massively out of favour with investors, as the value of the local stock exchange spiralled ever lower. Both local market participants, as well as foreign investors have had relatively little exposure to Japanese equities ever since, with many not appreciating the substantial turnaround in Japanese corporate fortunes, as a deeply unloved and under-owned asset class.
However, indicators suggest that Japan is once again returning to favour. It has been a promising start to the New Year for Japanese equities, with foreign investors piling into the market, buying a net USD17.3bn worth of stocks in January alone, the largest monthly purchase in three years. That compares with a net outflow of foreign money in the rest of Asia of USD3.35bn, according to data from Nomura. Japanese machinery orders rose the most in nine years from a record low, and 'domestic orders', an indicator of business investment in the next three to six months, climbed 20.1 percent in December from a month earlier.
Again, as with Technology company valuations, the lessons learned from 'the lost decade' have prepared many of Japan's leading companies for a promising future, with extremely healthy balance sheets and price earning ratios reflecting excellent value when compared to stocks elsewhere.
Whatever your view of the Japanese economy as a whole, the fact remains that Japanese firms still dominate and lead many global industrial sectors from autos, via specialist materials and capital goods to consumer items, e.g., from Suzuki to Nintendo. Therefore as the global economy regains its composure, Japanese firms should disproportionately benefit from their geographically well diversified sales base, particularly their exposure to the BRIC countries.
Looking ahead for Japan, Chris Taylor of Neptune Investment Management, commented "We expect improved corporate earnings from the global companies that have little dependence upon the domestic economy. They will be helped by their substantial exposure to non-OECD economies which will continue to expand strongly, contributing about two-thirds of likely global economic growth. The combination of these factors should see such Japanese firms collectively turn in the highest prevailing rate of earnings expansion across the globe."
Investment News: 11% per annum with early maturity opportunities, ISA ELIGIBLE
Prima Platinum Plan 4
Key Features
• Investment returns linked to the performance of the FTSE 100™ and DJ Eurostoxx 50™ (the Indices)
• No Index growth required to achieve quoted returns
• Early maturity will be triggered as long as the level of both Indices are at or above their Opening Levels at any Plan anniversary.
• Investors will lose some or all of their money if one or both Indices have fallen by more the 50% at any close of business during the investment term and the Final Level of one or both Indices is below its Opening Level, or in the event of the issuing bank failing to make the payments due under the Plan.
• Capital will be returned in full at maturity, provided neither of the Indices have fallen by more than 50% below their Opening Levels during the investment term
• Available to 5 March 2010
Target Market
This investment could be suitable as part of an investment portfolio for investors who
• understand and are used to equity investment, and
• are able to invest for a period of up to 6 years, and
• are prepared to accept a degree of risk to their capital in return for a higher potential growth than would be available via a deposit based investment
Key Dates
Offer period
To 5 March 2010, except for ISA transfers, where applications must be received by 26 February 2010.
Strike Date
12 March 2010
Opening Level
Close of Business on 12 March 2010
Final Level
Close of Business on 14 March 2016
Annual measurement dates
14 March 2011, 12 March 2012, 12 March 2013, 12 March 2014 and 12 March 2015, 14 March 2016
Maturity date
28 March 2016
http://www.meteoram.com
You should refer to the brochure which contains full details of the Prima Platinum Plan 4.
Telephone enquiries to: Derry Thornalley 01664 444625 or email derry.thornalley@aifsg.com
Key Facts
Investment Term: 6 years and 14 days, with the potential for early maturity. Early maturity will be triggered if the levels of both Indices are at or above their Opening Levels on an anniversary date of the Plan.
Availability: As direct investments, ISAs and ISA Transfers, and for pension funds, trustees and companies.
Indices FTSE 100™ & DJ Eurostoxx 50™
Investment Return 11% per annum (simple) for each year the Plan is in force, so the returns at each possible early maturity date would be 11% (end of year 1), 22% (end of year 2), 33% (end of year 3); 44% (end of year 4); 55% (end of year 5) or, if the plan runs the full 6 year term, and the Index Levels are at or above their Opening Levels, 66%.
If the Index Levels are below their Opening Levels no investment return will be payable.
Capital Return Capital will be returned in full at maturity as long as the Indices have never fallen by more than 50% of their respective Opening Levels at close of business on any day during the investment term. If one, or both, Indices have fallen by more than 50% and the Final Level of one, or both, Indices is less than its Opening Level capital will be reduced. The reduction will be 1% for each 1% the Final Level of the lower performing Index is below its Opening Level. If one, or both Indices have fallen by more than 50% you will receive a full return of capital as long as the Final Levels are at least equal to their Opening Levels. Please see the brochure for a full explanation of the calculation, plus examples.
Counterparty Risk The securities will be issued by Rabobank, which has a current rating of ‘AAA‘ by Standard and Poor’s. If Rabobank were to fail to meet the repayments due to us, you could lose some or all of your investment. The credit rating is subject to change during the offer period and the term of the investment. Counterparty risk is common to all similar investments. All references to the credit rating are correct as at the date of the brochure.
Tax Under current tax legislation gains on assets held in an ISA will be free from any tax, while gains on direct investments will be subject to Capital Gains Tax.
Interest Interest will be credited on subscriptions received and held in our client account up to the investment date, subject to a minimum interest addition of £10.00.
Charges There are no initial or ongoing charges. Charges are included in the pricing of the investment.
Early encashments and transfers during the investment term will be subject to an administration charge.
Commission 3% initial commission.
Securities Securities will be structured to provide the returns shown in the plan brochure, and purchased for each investor. These will be notes or warrants.
Key Features
• Investment returns linked to the performance of the FTSE 100™ and DJ Eurostoxx 50™ (the Indices)
• No Index growth required to achieve quoted returns
• Early maturity will be triggered as long as the level of both Indices are at or above their Opening Levels at any Plan anniversary.
• Investors will lose some or all of their money if one or both Indices have fallen by more the 50% at any close of business during the investment term and the Final Level of one or both Indices is below its Opening Level, or in the event of the issuing bank failing to make the payments due under the Plan.
• Capital will be returned in full at maturity, provided neither of the Indices have fallen by more than 50% below their Opening Levels during the investment term
• Available to 5 March 2010
Target Market
This investment could be suitable as part of an investment portfolio for investors who
• understand and are used to equity investment, and
• are able to invest for a period of up to 6 years, and
• are prepared to accept a degree of risk to their capital in return for a higher potential growth than would be available via a deposit based investment
Key Dates
Offer period
To 5 March 2010, except for ISA transfers, where applications must be received by 26 February 2010.
Strike Date
12 March 2010
Opening Level
Close of Business on 12 March 2010
Final Level
Close of Business on 14 March 2016
Annual measurement dates
14 March 2011, 12 March 2012, 12 March 2013, 12 March 2014 and 12 March 2015, 14 March 2016
Maturity date
28 March 2016
http://www.meteoram.com
You should refer to the brochure which contains full details of the Prima Platinum Plan 4.
Telephone enquiries to: Derry Thornalley 01664 444625 or email derry.thornalley@aifsg.com
Key Facts
Investment Term: 6 years and 14 days, with the potential for early maturity. Early maturity will be triggered if the levels of both Indices are at or above their Opening Levels on an anniversary date of the Plan.
Availability: As direct investments, ISAs and ISA Transfers, and for pension funds, trustees and companies.
Indices FTSE 100™ & DJ Eurostoxx 50™
Investment Return 11% per annum (simple) for each year the Plan is in force, so the returns at each possible early maturity date would be 11% (end of year 1), 22% (end of year 2), 33% (end of year 3); 44% (end of year 4); 55% (end of year 5) or, if the plan runs the full 6 year term, and the Index Levels are at or above their Opening Levels, 66%.
If the Index Levels are below their Opening Levels no investment return will be payable.
Capital Return Capital will be returned in full at maturity as long as the Indices have never fallen by more than 50% of their respective Opening Levels at close of business on any day during the investment term. If one, or both, Indices have fallen by more than 50% and the Final Level of one, or both, Indices is less than its Opening Level capital will be reduced. The reduction will be 1% for each 1% the Final Level of the lower performing Index is below its Opening Level. If one, or both Indices have fallen by more than 50% you will receive a full return of capital as long as the Final Levels are at least equal to their Opening Levels. Please see the brochure for a full explanation of the calculation, plus examples.
Counterparty Risk The securities will be issued by Rabobank, which has a current rating of ‘AAA‘ by Standard and Poor’s. If Rabobank were to fail to meet the repayments due to us, you could lose some or all of your investment. The credit rating is subject to change during the offer period and the term of the investment. Counterparty risk is common to all similar investments. All references to the credit rating are correct as at the date of the brochure.
Tax Under current tax legislation gains on assets held in an ISA will be free from any tax, while gains on direct investments will be subject to Capital Gains Tax.
Interest Interest will be credited on subscriptions received and held in our client account up to the investment date, subject to a minimum interest addition of £10.00.
Charges There are no initial or ongoing charges. Charges are included in the pricing of the investment.
Early encashments and transfers during the investment term will be subject to an administration charge.
Commission 3% initial commission.
Securities Securities will be structured to provide the returns shown in the plan brochure, and purchased for each investor. These will be notes or warrants.
QROPS Advice: Proving residency is simply too taxing
How do you escape the taxman by proving you are not a UK resident? It is becoming increasingly hard to know, as Seychelles-based millionaire businessman, Robert Gaines-Cooper, has just discovered.
This week the Court of Appeal ruled that ensuring that you are in Britain for only 91days in any year is no longer enough. It seems that having property here, or children in a British school, or horses in a British stable or even regular attendance at Ascot, may be enough to bring you within the UK tax net.
There will be many who applaud the Revenue’s crackdown on the thousands of super rich who are the leaving the rest of us to fill the gaping hole in the public finances. But a system that encourages bizarre arguments about the “centre of gravity” of a person’s life is damaging.
As Barclays’ John Varley said this week Britain’s increasingly uncertain tax regime makes it a less attractive place in which to live and do business.
A vague definition of UK tax residency may have suited the Government in the past, as it has been able to take either a lax or strict approach, depending on which way the wind was blowing.
The Revenue has also favoured this approach because it has made it impossible for clever lawyers and accountants to come up with fool-proof schemes to keep clients outside the taxman’s grasp.
But it is surely time to set out in law what is meant by UK residency. Having a horse should not be one of the tests.
By David Wighton
This week the Court of Appeal ruled that ensuring that you are in Britain for only 91days in any year is no longer enough. It seems that having property here, or children in a British school, or horses in a British stable or even regular attendance at Ascot, may be enough to bring you within the UK tax net.
There will be many who applaud the Revenue’s crackdown on the thousands of super rich who are the leaving the rest of us to fill the gaping hole in the public finances. But a system that encourages bizarre arguments about the “centre of gravity” of a person’s life is damaging.
As Barclays’ John Varley said this week Britain’s increasingly uncertain tax regime makes it a less attractive place in which to live and do business.
A vague definition of UK tax residency may have suited the Government in the past, as it has been able to take either a lax or strict approach, depending on which way the wind was blowing.
The Revenue has also favoured this approach because it has made it impossible for clever lawyers and accountants to come up with fool-proof schemes to keep clients outside the taxman’s grasp.
But it is surely time to set out in law what is meant by UK residency. Having a horse should not be one of the tests.
By David Wighton
QROPS Advice: Are You Resident or Not?
Who stands where in the non-resident stakes
Resident and ordinarily resident People who are resident in Britain and domiciled here pay tax to the British exchequer on their worldwide income and capital gains. People who come to Britain are treated as resident and ordinarily resident from the date they arrive if they intend to live here permanently or for three years or more
Non-resident Non-residents are not generally liable for income or capital gains tax, except on money earned in Britain. They also usually pay national insurance contributions on work in Britain for a British employer. People become non-resident if they leave Britain permanently or live abroad for at least three years, and if their return visits since leaving are less than 183 days in any tax year, and on average less than 91 days per tax year. It is estimated that there are less than 10,000 non-residents
Not ordinarily resident People who are not ordinarily resident are taxed only on the earnings attributable to their British earnings. They are not taxed on the whole of their worldwide income. To qualify, the person must leave Britain after three years
Non-domiciled Non-doms are often people whose families originate from abroad and typically retain affiliations with that country. People born in Britain can claim non-dom status if their fathers were born overseas. Under recent changes to the rules, non-doms can avoid tax on money earned outside Britain and brought back into the country provided they pay the Government £30,000 a year. There are around 65,000 people with non-dom status, around 33,000 of whom are classed as not ordinarily resident
Resident and ordinarily resident People who are resident in Britain and domiciled here pay tax to the British exchequer on their worldwide income and capital gains. People who come to Britain are treated as resident and ordinarily resident from the date they arrive if they intend to live here permanently or for three years or more
Non-resident Non-residents are not generally liable for income or capital gains tax, except on money earned in Britain. They also usually pay national insurance contributions on work in Britain for a British employer. People become non-resident if they leave Britain permanently or live abroad for at least three years, and if their return visits since leaving are less than 183 days in any tax year, and on average less than 91 days per tax year. It is estimated that there are less than 10,000 non-residents
Not ordinarily resident People who are not ordinarily resident are taxed only on the earnings attributable to their British earnings. They are not taxed on the whole of their worldwide income. To qualify, the person must leave Britain after three years
Non-domiciled Non-doms are often people whose families originate from abroad and typically retain affiliations with that country. People born in Britain can claim non-dom status if their fathers were born overseas. Under recent changes to the rules, non-doms can avoid tax on money earned outside Britain and brought back into the country provided they pay the Government £30,000 a year. There are around 65,000 people with non-dom status, around 33,000 of whom are classed as not ordinarily resident
Tuesday, 16 February 2010
QROPS Advice: PBR - IHT planning with trusts clampdown
As you will be aware, the Chancellor took advantage of the Pre-Budget Report (PBR) to announce changes in legislation aimed at what it described as two artificial IHT mitigation schemes involving trusts, which had come to the attention of the Treasury.
The first scheme took advantage of the loophole caused by poor drafting of one particular part of the legislation introduced on 22nd March 2006. It is this scheme that will be considered here.
Planning with interests in possession
To explain. Before the changes, it was possible to create an interest in possession trust and have the transfer treated as a potentially exempt transfer (PET). The downside of this type of trust was that the full value of the trust fund was treated, for IHT purposes, as being in the estate of the beneficiary entitled to the income. Since IHT is primarily intended to tax assets once a generation, treating the interest in possession in this way ensured that aim.
Example: John created flexible interest in possession trust for the wider benefit of his family (excluding himself) but with his daughter Emily entitled to any income generated by the trust fund.
Under a discretionary trust, however, no beneficiary has a right to income and so IHT is not dependent on the life of a beneficiary. You could consider the discretionary trust as having an artificial life of its own – a transfer in is a chargeable lifetime transfer (CLT) and periodic and exit charges also potentially apply.
Example: John created a discretionary trust for the wider benefit of his family (excluding himself), under which no one individual was entitled to either income or capital.
In order to avoid a potential double charge to IHT under any new interest in possession trust, it was necessary to make a change in the legislation. The legislation introduced in 2006 provided that a new interest in possession created after that date would not form part of the Settlor's estate for IHT purposes.
It is worth repeating that: a new interest in possession created after 22nd March 2006 will not form part of the Settlor’s estate for IHT purposes.
That is the crux of the planning in this scheme.
Planning with reversionary interests
Before 2003, if a Settlor created a discretionary trust for the benefit of his family, it was possible to claim capital gains tax (CGT) holdover relief. The rationale for this being that if IHT was payable when creating the trust, CGT should not be so.
Those seeking to achieve the advantage of CGT holdover relief without actually incurring an IHT liability were advised to create trusts under which they retained a valuable right. This valuable right depressed the value of the transfer for IHT purposes, meaning no IHT was actually payable but secured CGT holdover relief nonetheless.
Example: John created a discretionary trust as before, with shares worth £1m having gains of £300k. The value of the CLT was £9,990k. No IHT is payable. CGT holdover relief was claimed in respect of the £300k gains, no CGT was payable at this time.
Clearly this was unacceptable to the Revenue and, having lost in the test case of Melville, legislation was introduced to combat this perceived abuse. However, it was accepted that the mechanism of depressing the initial value for IHT purposes achieved its aim.
Putting the two together!
Settlors were encouraged to create trusts under which they retained a reversionary interest but that reversionary interest was not in the full trust fund but in an interest in possession in it, i.e. a right to income for a specified period, typically 99 years. The initial transfer into trust, although being a CLT, was depressed by the significant value of the reversionary interest, i.e. it was negligible.
When the reversionary interest fell in and the interest in possession vested, at the end of whatever period the Settlor had determined, the full value of the trust fund fell out of his estate!
If he died, there would be no liability to IHT on the trust fund.
If he gave away his interest in possession, there would be no transfer of value. Further, there would be no value in the estate of the donee who received the interest in possession – and so on and so on, ad infinitum!
The “solution”
Whilst it had been anticipated that the Treasury would take steps to prevent interests in possession being treated in this way, i.e. to address the poor drafting which allowed this planning, as we have seen, the measures introduced have gone far further than this, impacting on the tax treatment of reversionary interests in general.
The impact for those caught
Bearing in mind that the changes introduced in 2006 intended to ensure that transfers into trusts that were within the relevant property regime actually gave rise to an IHT liability when the sums transferred were in excess of the available nil rate band, the “solution” might seem apt.
If a Settlor has created such a trust under which his reversionary interest has not yet fallen in or been given away, he will face a charge to IHT at lifetime rates when one or other of those events occurs.
In the PBR it was announced that “The Government announces it is also examining wider solutions to the problem of trusts being used to avoid inheritance tax charges.” It is understood that what is meant by this statement is that the Government will review the legislation introduced in 2006 to ensure, as far as possible, no other unintended “loopholes” exist. Clearly, we will have to keep an eye on developments!
By Deborah Moon - technical manager for Royal London 360° 16/12/2009
Solution
PRIVATE INTEREST FOUNDATIONS
Private foundations are legal entities set up by an individual, a family or a group of individuals, for a purpose of providing for the needs and objectives of the individual, family or group.
Foundations are more versatile and can accomplish more than Trusts, Companies, Wills and provide strict rules of confidentiality
No one owns a Private Interest Foundation, so you are not the owner of the Foundation, no one is according to the statutory laws of the jurisdiction in which it is held.
A Foundation is a tried and tested way to protect and shelter your assets including real estate, bank accounts, financial instruments, securities, art, family heirlooms, corporations, cars, planes, boats, etc., from existing or potential financial enemies. There is no limit to what a Foundation can own, and the business affairs of the Foundations are anonymous.
The Foundation’s assets are ring-fenced and are totally separate from the assets and liabilities of the party/ies who establish the foundation.
BENEFITS
A foundation can be used in a manner similar to a trust to pass on assets bypassing estate taxes at the time of death.
A Foundation can hold a corporation and a bank account which makes it the cornerstone of some of the best asset protection structures in the world today.
A Foundation cannot engage in business activities in its own right, like marketing and selling a product. A foundation can, however, own an offshore/onshore company and banking accounts. The offshore/onshore company can then engage in business activities.
Foundations do not pay tax on foreign sourced funds. This makes a foundation a great part of any tax planning strategy
A Foundation is an essential tool for asset protection particularly for those engaged in business and HNWIs
FOUNDATION V's TRUST
Operation of Private Foundation Very Similar to a Trust
Foundation Provides More Protections For Founders
Private Foundation is Multi-Generational, No Limit on Duration
Private Foundation is More Flexible
Founder Retains Full Control
Founder May Add, Remove Assets and Beneficiaries At Any Time
No Taxes within a Private Foundations
It is common for an onshore trust to be broken for any number of different reasons. If you want your wishes followed to the "letter" then a Foundation is your best option.
In the case of a Trust the Settlor has to contend with anit-trust legislation, non-recognition of trusts, sham trusts, defective trusts, thus giving away wealth and losing control. Alternatively, a Settlor or the beneficiaries may wish to change the jurisdiction or the trustees which, in most instances would not be welcomed or be resisted by those effected.
The Foundation, however, provides complete control at all times.
Trust Law a constantly being reviewed, for example in the UK trusts can no longer use trustees based in overseas jurisdictions (which enjoy a low or nil rate of local tax and double taxation treaties with the UK to mitigate capital gains tax)
A Foundation would be immune from such disadvantages.
WHAT CAN A PRIVATE FOUNDATION DO?
Ensure Founder’s Confidentiality
Minimize Taxes on Assets and Investments
Protect Assets and Investments From Creditors
Manage Assets and Investments
Defer Income
Preserve Family Assets Over Multiple Generations
Make Distributions to Beneficiaries Like a Trust
Orderly and Quick Distribution of Assets to Beneficiaries Upon Founder’s Passi
TAX BENEFITS OF A FOUNDATION
No Inventory Tax
No tax reporting requirements
No Income Tax
No Capital Gains Tax
No Interest Income Tax
No Sales Tax
No tax on issuance of corporate shares
No tax on shareholders
No property tax
No estate tax
No stamp duty
No gift tax
No succession tax
FLEXIBILTY
What Kinds of Assets Can Private Foundation Hold?
No Limit
Cash in Foreign or Local Bank Accounts
Certificates of Deposit
Interest-Bearing Claims of Any Denomination
Real Property
Intangible Property
Shares (Tradable and Private)
Beneficiary Interests Example: Right to Receive Dividends
Art and collectibles
Corporations
Boats, planes & cars
Ownership of an existing Offshore Company Can Be Transferred to Private Foundation, No Need to Change Offshore Companies’ Structure, Simply Make Foundation the Owner
WHO WOULD BENEFIT FROM USING A FOUNDATION?
Persons Seeking to Manage Taxes
Persons Wanting to Consolidate Holdings Under
Single, Flexible Umbrella
Persons Wanting to Ensure Confidentiality
Persons Who Want a Discreet, Reliable Way to Provide For Loved Ones
Persons Seeking a Vehicle For Retirement
Persons Seeking a Vehicle For Estate Planning
Call 01664 444625 and ask about Foundations
The first scheme took advantage of the loophole caused by poor drafting of one particular part of the legislation introduced on 22nd March 2006. It is this scheme that will be considered here.
Planning with interests in possession
To explain. Before the changes, it was possible to create an interest in possession trust and have the transfer treated as a potentially exempt transfer (PET). The downside of this type of trust was that the full value of the trust fund was treated, for IHT purposes, as being in the estate of the beneficiary entitled to the income. Since IHT is primarily intended to tax assets once a generation, treating the interest in possession in this way ensured that aim.
Example: John created flexible interest in possession trust for the wider benefit of his family (excluding himself) but with his daughter Emily entitled to any income generated by the trust fund.
Under a discretionary trust, however, no beneficiary has a right to income and so IHT is not dependent on the life of a beneficiary. You could consider the discretionary trust as having an artificial life of its own – a transfer in is a chargeable lifetime transfer (CLT) and periodic and exit charges also potentially apply.
Example: John created a discretionary trust for the wider benefit of his family (excluding himself), under which no one individual was entitled to either income or capital.
In order to avoid a potential double charge to IHT under any new interest in possession trust, it was necessary to make a change in the legislation. The legislation introduced in 2006 provided that a new interest in possession created after that date would not form part of the Settlor's estate for IHT purposes.
It is worth repeating that: a new interest in possession created after 22nd March 2006 will not form part of the Settlor’s estate for IHT purposes.
That is the crux of the planning in this scheme.
Planning with reversionary interests
Before 2003, if a Settlor created a discretionary trust for the benefit of his family, it was possible to claim capital gains tax (CGT) holdover relief. The rationale for this being that if IHT was payable when creating the trust, CGT should not be so.
Those seeking to achieve the advantage of CGT holdover relief without actually incurring an IHT liability were advised to create trusts under which they retained a valuable right. This valuable right depressed the value of the transfer for IHT purposes, meaning no IHT was actually payable but secured CGT holdover relief nonetheless.
Example: John created a discretionary trust as before, with shares worth £1m having gains of £300k. The value of the CLT was £9,990k. No IHT is payable. CGT holdover relief was claimed in respect of the £300k gains, no CGT was payable at this time.
Clearly this was unacceptable to the Revenue and, having lost in the test case of Melville, legislation was introduced to combat this perceived abuse. However, it was accepted that the mechanism of depressing the initial value for IHT purposes achieved its aim.
Putting the two together!
Settlors were encouraged to create trusts under which they retained a reversionary interest but that reversionary interest was not in the full trust fund but in an interest in possession in it, i.e. a right to income for a specified period, typically 99 years. The initial transfer into trust, although being a CLT, was depressed by the significant value of the reversionary interest, i.e. it was negligible.
When the reversionary interest fell in and the interest in possession vested, at the end of whatever period the Settlor had determined, the full value of the trust fund fell out of his estate!
If he died, there would be no liability to IHT on the trust fund.
If he gave away his interest in possession, there would be no transfer of value. Further, there would be no value in the estate of the donee who received the interest in possession – and so on and so on, ad infinitum!
The “solution”
Whilst it had been anticipated that the Treasury would take steps to prevent interests in possession being treated in this way, i.e. to address the poor drafting which allowed this planning, as we have seen, the measures introduced have gone far further than this, impacting on the tax treatment of reversionary interests in general.
The impact for those caught
Bearing in mind that the changes introduced in 2006 intended to ensure that transfers into trusts that were within the relevant property regime actually gave rise to an IHT liability when the sums transferred were in excess of the available nil rate band, the “solution” might seem apt.
If a Settlor has created such a trust under which his reversionary interest has not yet fallen in or been given away, he will face a charge to IHT at lifetime rates when one or other of those events occurs.
In the PBR it was announced that “The Government announces it is also examining wider solutions to the problem of trusts being used to avoid inheritance tax charges.” It is understood that what is meant by this statement is that the Government will review the legislation introduced in 2006 to ensure, as far as possible, no other unintended “loopholes” exist. Clearly, we will have to keep an eye on developments!
By Deborah Moon - technical manager for Royal London 360° 16/12/2009
Solution
PRIVATE INTEREST FOUNDATIONS
Private foundations are legal entities set up by an individual, a family or a group of individuals, for a purpose of providing for the needs and objectives of the individual, family or group.
Foundations are more versatile and can accomplish more than Trusts, Companies, Wills and provide strict rules of confidentiality
No one owns a Private Interest Foundation, so you are not the owner of the Foundation, no one is according to the statutory laws of the jurisdiction in which it is held.
A Foundation is a tried and tested way to protect and shelter your assets including real estate, bank accounts, financial instruments, securities, art, family heirlooms, corporations, cars, planes, boats, etc., from existing or potential financial enemies. There is no limit to what a Foundation can own, and the business affairs of the Foundations are anonymous.
The Foundation’s assets are ring-fenced and are totally separate from the assets and liabilities of the party/ies who establish the foundation.
BENEFITS
A foundation can be used in a manner similar to a trust to pass on assets bypassing estate taxes at the time of death.
A Foundation can hold a corporation and a bank account which makes it the cornerstone of some of the best asset protection structures in the world today.
A Foundation cannot engage in business activities in its own right, like marketing and selling a product. A foundation can, however, own an offshore/onshore company and banking accounts. The offshore/onshore company can then engage in business activities.
Foundations do not pay tax on foreign sourced funds. This makes a foundation a great part of any tax planning strategy
A Foundation is an essential tool for asset protection particularly for those engaged in business and HNWIs
FOUNDATION V's TRUST
Operation of Private Foundation Very Similar to a Trust
Foundation Provides More Protections For Founders
Private Foundation is Multi-Generational, No Limit on Duration
Private Foundation is More Flexible
Founder Retains Full Control
Founder May Add, Remove Assets and Beneficiaries At Any Time
No Taxes within a Private Foundations
It is common for an onshore trust to be broken for any number of different reasons. If you want your wishes followed to the "letter" then a Foundation is your best option.
In the case of a Trust the Settlor has to contend with anit-trust legislation, non-recognition of trusts, sham trusts, defective trusts, thus giving away wealth and losing control. Alternatively, a Settlor or the beneficiaries may wish to change the jurisdiction or the trustees which, in most instances would not be welcomed or be resisted by those effected.
The Foundation, however, provides complete control at all times.
Trust Law a constantly being reviewed, for example in the UK trusts can no longer use trustees based in overseas jurisdictions (which enjoy a low or nil rate of local tax and double taxation treaties with the UK to mitigate capital gains tax)
A Foundation would be immune from such disadvantages.
WHAT CAN A PRIVATE FOUNDATION DO?
Ensure Founder’s Confidentiality
Minimize Taxes on Assets and Investments
Protect Assets and Investments From Creditors
Manage Assets and Investments
Defer Income
Preserve Family Assets Over Multiple Generations
Make Distributions to Beneficiaries Like a Trust
Orderly and Quick Distribution of Assets to Beneficiaries Upon Founder’s Passi
TAX BENEFITS OF A FOUNDATION
No Inventory Tax
No tax reporting requirements
No Income Tax
No Capital Gains Tax
No Interest Income Tax
No Sales Tax
No tax on issuance of corporate shares
No tax on shareholders
No property tax
No estate tax
No stamp duty
No gift tax
No succession tax
FLEXIBILTY
What Kinds of Assets Can Private Foundation Hold?
No Limit
Cash in Foreign or Local Bank Accounts
Certificates of Deposit
Interest-Bearing Claims of Any Denomination
Real Property
Intangible Property
Shares (Tradable and Private)
Beneficiary Interests Example: Right to Receive Dividends
Art and collectibles
Corporations
Boats, planes & cars
Ownership of an existing Offshore Company Can Be Transferred to Private Foundation, No Need to Change Offshore Companies’ Structure, Simply Make Foundation the Owner
WHO WOULD BENEFIT FROM USING A FOUNDATION?
Persons Seeking to Manage Taxes
Persons Wanting to Consolidate Holdings Under
Single, Flexible Umbrella
Persons Wanting to Ensure Confidentiality
Persons Who Want a Discreet, Reliable Way to Provide For Loved Ones
Persons Seeking a Vehicle For Retirement
Persons Seeking a Vehicle For Estate Planning
Call 01664 444625 and ask about Foundations
QROPS Advice: Tax relief for migrants
Tax tips from a technical Expert Tax relief for migrantsAs we struggle through what may shape up to become the coldest winter for many years, which followed yet another “wettest summer on record in the UK”, I think I would be sympathetic with anyone who decides enough is enough and goes in search of a warmer climate.
In fact I have since discovered that, every year since 2000 in the UK, over 300,000 people* (*Source: UK Office of National Statistics, October 2009leave the cold British weather to work overseas. What many do not realise is that it is not just the weather that can be attractive. An investment in an offshore bond could bring some valuable tax benefits from any absence from the UK.
Chargeable event liability
A UK resident will normally incur an income tax liability on any gain when a chargeable event occurs, for example, when they cash in the full value of an investment bond.
However, a claim can be made to reduce any gain and any associated tax charge in respect of all time spent outside of the UK during the period the bond has been invested. This is referred to as ‘time apportionment relief ’.
Only an offshore bond can generate this relief, as this is a unique benefit to offshore bonds.
So for any individual looking to invest, if there is a chance they may spend some time working outside the UK, the potential tax advantages of time apportionment relief should not be overlooked.
Example
Here’s an example to illustrate what I mean:
Kate invested in an offshore bond in March 1999 and then spent some time working overseas as a non UK resident. She returned to the UK in June 2003 and was regarded as a UK resident from that date. In November 2007, Kate decided to cash in her bond when she was a higher rate taxpayer, with a chargeable gain of £63,500.
Instead of paying tax of £25,400 (40% of £63,500), Kate has used the time she spent outside of the UK to reduce her tax charge to £13,249, a saving of £12,151 because time apportionment reduces chargeable gain to only £33,122.
The formula for time apportionment relief is:
Gain x Number of days as UK resident/Number of days the bond has been in existence
This benefit applies to additional investments into an existing offshore bond as these may also benefit from time apportionment relief, even though the additional investments may not have been made during a period of non UK residence.
In this way it may also be appropriate to continue to invest in an existing bond after returning to the UK. Topping up an investment could be more beneficial than taking out a new bond as it should reduce the tax charge on the gain from the additional investment with the benefit of time apportionment relief.
By Mark Green
For advice on Offshore Bonds Call 01664 444625
In fact I have since discovered that, every year since 2000 in the UK, over 300,000 people* (*Source: UK Office of National Statistics, October 2009leave the cold British weather to work overseas. What many do not realise is that it is not just the weather that can be attractive. An investment in an offshore bond could bring some valuable tax benefits from any absence from the UK.
Chargeable event liability
A UK resident will normally incur an income tax liability on any gain when a chargeable event occurs, for example, when they cash in the full value of an investment bond.
However, a claim can be made to reduce any gain and any associated tax charge in respect of all time spent outside of the UK during the period the bond has been invested. This is referred to as ‘time apportionment relief ’.
Only an offshore bond can generate this relief, as this is a unique benefit to offshore bonds.
So for any individual looking to invest, if there is a chance they may spend some time working outside the UK, the potential tax advantages of time apportionment relief should not be overlooked.
Example
Here’s an example to illustrate what I mean:
Kate invested in an offshore bond in March 1999 and then spent some time working overseas as a non UK resident. She returned to the UK in June 2003 and was regarded as a UK resident from that date. In November 2007, Kate decided to cash in her bond when she was a higher rate taxpayer, with a chargeable gain of £63,500.
Instead of paying tax of £25,400 (40% of £63,500), Kate has used the time she spent outside of the UK to reduce her tax charge to £13,249, a saving of £12,151 because time apportionment reduces chargeable gain to only £33,122.
The formula for time apportionment relief is:
Gain x Number of days as UK resident/Number of days the bond has been in existence
This benefit applies to additional investments into an existing offshore bond as these may also benefit from time apportionment relief, even though the additional investments may not have been made during a period of non UK residence.
In this way it may also be appropriate to continue to invest in an existing bond after returning to the UK. Topping up an investment could be more beneficial than taking out a new bond as it should reduce the tax charge on the gain from the additional investment with the benefit of time apportionment relief.
By Mark Green
For advice on Offshore Bonds Call 01664 444625
QROPS Advice: Concerns over NZ's QROPS status quelled
Fears New Zealand may follow Singapore in having its QROPS status removed have been quashed after an agreement was reached between HM Revenue & Customs and the country’s government actuary, according to an industry source.
International Adviser reported last month there were growing fears New Zealand could be stripped of its QROPS status because of concerns over some of its registered schemes.
According to Stephen Ward, managing director of pension transfer experts, Premier Pension Solutions SL, the concerns related to a tax break applicable to employer contributions into a scheme known as Kiwisavers.
Ward says he and a number of other advisers flagged the issue to New Zealand’s Government Actuary and, after discussions with HMRC, the problem has been resolved and members of the scheme informed.
While HMRC would not confirm details on the case in its most recent list of QROPS, published on 8 February this year, the New Zealand Kiwisavers scheme continues to appear.
However, it should be noted HMRC states on the list that ‘publication should not be seen as confirmation by HMRC it has verified all the information supplied by the scheme in its application’.
Ward said: “There has been a lot of misinformed speculation about New Zealand as a QROPS jurisdiction.
“We were involved in alerting the New Zealand authorities of this minor Kiwisavers tax issue and are delighted with the outcome and that any possible uncertainty surrounding using New Zealand schemes has now been clarified once and for all.”
International Adviser reported last month there were growing fears New Zealand could be stripped of its QROPS status because of concerns over some of its registered schemes.
According to Stephen Ward, managing director of pension transfer experts, Premier Pension Solutions SL, the concerns related to a tax break applicable to employer contributions into a scheme known as Kiwisavers.
Ward says he and a number of other advisers flagged the issue to New Zealand’s Government Actuary and, after discussions with HMRC, the problem has been resolved and members of the scheme informed.
While HMRC would not confirm details on the case in its most recent list of QROPS, published on 8 February this year, the New Zealand Kiwisavers scheme continues to appear.
However, it should be noted HMRC states on the list that ‘publication should not be seen as confirmation by HMRC it has verified all the information supplied by the scheme in its application’.
Ward said: “There has been a lot of misinformed speculation about New Zealand as a QROPS jurisdiction.
“We were involved in alerting the New Zealand authorities of this minor Kiwisavers tax issue and are delighted with the outcome and that any possible uncertainty surrounding using New Zealand schemes has now been clarified once and for all.”
QROPS Advice: Spotlight on Protected Funds
Broadly speaking, recent market volatility has split investors into one of two categories; those that are willing to take advantage of the opportunities that market movements represent, and those that are unsure of the future and instead wish to focus, primarily at least, on preservation of their wealth.
Capital protected funds serve as a solution to each type of investor, providing exposure to the upside of equity markets, whilst maintaining a level of protection that gives the investor peace of mind in the knowledge that not all of their investment is at risk.
An 'Investment Sentiment' survey conducted towards the end of 2009 by the UK's Investment Management Association found that almost 70% of investors still want to put money into capital protected funds. For 2008 and 2009, sales by fund type, via an investment bond (as opposed to direct investment into the fund), show that such funds rank as the second and third most popular choice respectively.
The basic principle of most capital protected funds is that the majority of the investors' money goes into an active 'basket' of equity stocks (the basket of many funds available will have a specific focus, e.g. emerging markets), with an amount being kept aside for investment into a capital protection solution; it is this element of the fund that is used to protect a proportion the fund's value, the amount set aside determining the amount of protection available (e.g. 90%, 80% etc).
On this basis, investors in such funds should bear in mind that they will not benefit as much from an increase in value of the active portion of the fund, as they would have done if they were instead invested in a traditional, 100% equity fund. However, the relatively small sacrifice of growth potential, in return for capital protection is what makes such funds so particularly appealing to investors that are approaching retirement, or simply unsure about future volatility.
It is common practice for capital protected funds to be managed by two distinct parties; an investment manager to maximise growth from the active element of the fund, and a specialist provider of capital protection solutions. The latter will have experience in trading sophisticated financial instruments which, ultimately, provides the 'safety net' element of the fund.
Colin Graham of BlackRock, managers of the active element of the Hansard Multi-Asset Protector fund commented "Of the other positions held in the portfolio, the recent strong performance of the BGF (BlackRock) US Flexible Equity Fund has been driven by the Fund's focus on quality stocks, with an emphasis on healthcare and energy, at the expense of financials and consumer staples. Meanwhile, the performance of the BGF World Health and Science Fund was well supported by strong stock selection of the vast majority of sub-sectors, including healthcare providers and services.
While we remain focused on the improving economic outlook, our positions are relatively modest, reflecting the risks to these views and our anticipation of a moderate, rather than buoyant, prospective return environment. As such, and in the expectancy of ongoing economic and market volatility, we continue to allocate risk in a diversified fashion."
Capital protected funds serve as a solution to each type of investor, providing exposure to the upside of equity markets, whilst maintaining a level of protection that gives the investor peace of mind in the knowledge that not all of their investment is at risk.
An 'Investment Sentiment' survey conducted towards the end of 2009 by the UK's Investment Management Association found that almost 70% of investors still want to put money into capital protected funds. For 2008 and 2009, sales by fund type, via an investment bond (as opposed to direct investment into the fund), show that such funds rank as the second and third most popular choice respectively.
The basic principle of most capital protected funds is that the majority of the investors' money goes into an active 'basket' of equity stocks (the basket of many funds available will have a specific focus, e.g. emerging markets), with an amount being kept aside for investment into a capital protection solution; it is this element of the fund that is used to protect a proportion the fund's value, the amount set aside determining the amount of protection available (e.g. 90%, 80% etc).
On this basis, investors in such funds should bear in mind that they will not benefit as much from an increase in value of the active portion of the fund, as they would have done if they were instead invested in a traditional, 100% equity fund. However, the relatively small sacrifice of growth potential, in return for capital protection is what makes such funds so particularly appealing to investors that are approaching retirement, or simply unsure about future volatility.
It is common practice for capital protected funds to be managed by two distinct parties; an investment manager to maximise growth from the active element of the fund, and a specialist provider of capital protection solutions. The latter will have experience in trading sophisticated financial instruments which, ultimately, provides the 'safety net' element of the fund.
Colin Graham of BlackRock, managers of the active element of the Hansard Multi-Asset Protector fund commented "Of the other positions held in the portfolio, the recent strong performance of the BGF (BlackRock) US Flexible Equity Fund has been driven by the Fund's focus on quality stocks, with an emphasis on healthcare and energy, at the expense of financials and consumer staples. Meanwhile, the performance of the BGF World Health and Science Fund was well supported by strong stock selection of the vast majority of sub-sectors, including healthcare providers and services.
While we remain focused on the improving economic outlook, our positions are relatively modest, reflecting the risks to these views and our anticipation of a moderate, rather than buoyant, prospective return environment. As such, and in the expectancy of ongoing economic and market volatility, we continue to allocate risk in a diversified fashion."
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