Working Together in Prosperity

We would first like to state unequivocally the position regarding Inheritance Tax. When an individual is a UK national it is very difficult to change domicile. To do so, in very simple terms, means that a new nationality/domicile must be obtained, it is not possible to have no domicile, one either has a domicile of choice or a domicile of origin.

That said, although a British national may be not resident for tax purposes, their estate will still be liable for Inheritance Tax (IHT) on their entire worldwide assets. What is also not widely realised that assets which are British ‘in situ’ for example a UK property even if owned by a non British National who is non resident will also be potentially liable for UK Inheritance Tax.

Another lesser known fact is that although transfers between spouses are exempt from inheritance tax, if a spouse does not have British domicile this exemption does not apply and there is only the £ 55,000 ‘foreign spouse allowance’

Having taken the time and effort to select the best investment for your money you should naturally ensure your investment remains tax-efficient during, and after your lifetime, and that the people you want to, benefit from your money. Investing through a trust helps ensure the right money is paid to the right people at the right time.

A trust sounds complicated and expensive – but it need not be either.

To make this easy, you can now combine the performance opportunities, flexibility, value for money and tax-efficiency of an Investment Contract.

Why put your investment in trust?

Many people believe trusts are only of value to investors affected by UK tax rules – but some of the key benefits of investing through a trust are available to investors worldwide.

Advantages of using trusts.

Tax-planning opportunities

Control UK inheritance tax liabilities

Provide a tax- efficient source of "income"

Estate planning

No probate worries during emotional circumstances

Ensure the people you choose inherit your money

May avoid forced heir ship rules

Allow younger generations to benefit from wealth bur not control it.

Confidentiality

Trust deeds rarely have to be publicly declared

Political stability

Shelter your investment from unstable political regimes

Asset protection

If set up in good faith it can potentially protect assets from creditors.

No trustee income tax

Unlike trustees in the UK , IOM currently does not have income tax on money paid to beneficiaries. This could be a saving of up to 34% in the 1999/2000 tax year.

Recognition of trusts

Many countries, whether of civil or common law jurisdiction, now recognise thrusts. The Hague Convention on Law Applicable to Trusts and their Recognition (1984) was signed by 33 countries. This means that, even if the country itself does not have a history of using trusts, it should recognise the rights of an individual involved with a trust elsewhere.

How does a trust work?

In simple terms, a trust works by transferring legal ownership of your investment to someone else – the trustees. The trustees hold your investment for the benefit of others – the beneficiaries. You, as the creator of the trust, choose who you want as trustees and beneficiaries.

The Settlor - Gives assets to another party – the trustee

The Trustee - Holds the assets for the benefit of others – the beneficiaries

The Beneficiaries - May benefit from the assets in the trust

The Protector - Optional – someone to liaise with the trustees to ensure the settlor’s wishes are carried out. They have a veto over certain trustee actions.

You, as settlor, can use this to provide more information to the trustees on what and when payments should be made to beneficiaries, for example paying your children’s school fees. This is only an expression of wishes and is not a legally binding document. It is best to send the letter of wishes to the trustees at least one month after the trust is set up.

Discretionary Trust for International Investors - The Discretionary Trust is best suited for two specific groups of people :

International investors worldwide not subject to UK taxes and not UK Domiciled

Investors in the UK who are not UK domiciled

It allows you, your spouse, children and other family members to benefit from the trust.

Benefits at a glance

No UK inheritance tax liability when the trust is set up

Outside your estate on your death

You, your spouse and family can benefit from the trust

No delays or extra legal costs for probate

In this particular case there is absolutely no question that the estate would be subject to UK Inheritance Tax in addition should the client ever return to the UK for a period exceeding 6 months in any tax year or 180 days average over three tax years they will immediately be liable for CGT and Income tax on their worldwide income unless protected.

Ross Pays is the Chairman of The FAA based in Cyprus. FAA offer advice on wills, tax registration services, home, health and car insurance, investment services and tax planning, including Inheritance Tax Planning, together with full accounting services.

Visit Ross Pays website at www.rosspays.com, Telephone 00 357 25 82 58 76, Fax 00 357 25 33 35 93 or e-mail ross@rosspays.com
Initial consultations are free and no obligation and fee quotations will be provided in advance for all services.