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HMRC Opens Window Of Opportunity For Offshore Trusts

Wednesday, July 14, 2010

When Chancellor of the Exchequer George Osborne in his emergency budget increased the rate of capital gains tax from midnight on budget day (22 June) concerns were raised as to exactly how this would apply to offshore trusts. The Finance Bill (published on July 1) has now clarified this position and it appears that HMRC have unexpectedly left a window open for trustees to secure a lower rate for their settlors and beneficiaries in certain circumstances.

Jenny Wilson-Smith, a Private Client and Tax solicitor at law firm Boodle Hatfield, says: “UK resident and domiciled settlors of settlor interested offshore trusts are taxed on any gains realised by the trust as they arise. The transitional provisions in the Finance Bill confirm that all gains arising in this current tax year (2010/11) will be taxed at the lower rate of 18%. Offshore trustees of trusts where this settlor charge applies should therefore consider realising gains before April 6, 2011.”

The position is a bit more complicated for UK resident beneficiaries of offshore trusts, as Wilson-Smith explains: “When a beneficiary receives a benefit from an offshore trust, which can include a beneficial loan or the free use of a property as well as money, a charge to CGT may arise when that benefit is ‘matched’ to chargeable gains realised by the trustees. The transitional provisions confirm that if a beneficiary received such a benefit prior to midnight on budget day any consequent gain arising in the current tax year will be charged at the lower rates. Therefore offshore trustees could again consider realising gains before 6 April 2011 to trigger a charge at 18%, where unmatched benefits were received by beneficiaries before 23 June.”

“There is however a downside,” adds Wilson-Smith. “Where a beneficiary receives a benefit from an offshore trust after budget day any gain may be charged at the higher 28% rate regardless of when the gains to which the benefit is matched arose and maybe charged at a rate as high as 44.8% if the gains have been stockpiled for some time.”

One note of caution; the Bill has not yet been enacted and so may be subject to change. Trustees should take advice before taking any action.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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