The Tax Knowledge Centre by ETC Tax – Specialist Tax Advice & Financial Tax Related Matters – All the info you could need in one place…
Tax-effective asset protection strategies can safeguard your assets, income and estate from financial threats, while ensuring future continuity, safety and security of your wealth.
A key part of advising any high net worth individual will be ensuring that their personal balance sheet is protected from financial ‘predators’ in their lifetime – business creditors, divorce, bankruptcy, inheritance tax and more.
Asset protection can help you maintain your standard of living and preserve your ability to pass on wealth and assets as you choose as part of a legitimate approach to estate planning.
There is however no single, winning formula.
Effective asset protection requires substantial tax, legal and risk expertise, in order to draw on the full range of financial tools to meet your individual needs.
ETC work with businesses and high net worth individuals on all aspects of asset and wealth protection.
We will devise a tax-efficient plan designed to separate and protect your portfolio of assets from external financial threats – be that business creditors, a former spouse or the taxman on death.
We advise business owners across all sectors, as well as individuals from occupations considered to be at relatively high risk of litigation, such as medical and legal professionals.
Non-UK domiciled individuals that are resident in the UK are likely to have established non-UK structures as a vehicle for their assets. We are experienced in reviewing such structures and making sure they remain fit for purpose.
Being non-UK domiciled in the UK for tax purposes can have significant advantages from a UK tax perspective – whether this is in relation to access to the remittance basis of taxation for income tax and CGT purposes, or the fact that you will only be subject to IHT on UK assets.
One of the ways commonly used to protect assets is to set up a trust. We can advise on the suitability of the various types of trusts to allow you to preserve your assets for the benefit of your loved ones.
However, trusts are only one type of vehicle and we are also able to provide advice in relation to Family Investment Companies (“FICs”), family partnerships and also foundations – a vehicle which becoming more common, having only really been the preserve of those living in civil law jurisdictions.
We are also highly experienced in advising individuals and businesses on cross-border estate planning strategies, where complex financial arrangements exist both in the UK and overseas.
Your approach to asset protection should be reviewed on a regular basis. Changes in your professional and personal circumstances will need to be accounted for to ensure continued effectiveness. In addition, changes in the rules and legislation governing asset protection – of which there are many – will demand exceptional reviews to be undertaken to guarantee compliance.
A number of asset protection tools are available, such as gifts, allowances, exemptions and trusts. Devising the most appropriate combination of these to meet your needs requires specialist advice and experience, in light of tax consequences, legislation and regulatory requirements.
Trusts, for example, provide control over who benefits from your wealth, and when. Rather than making an outright gift, a transfer to a trust allows the donor to retain some control over the assets of the trust – whether personally, or delegated to a third party, trustee.
Although often allowing the beneficiary to enjoy the income of the trust, the capital is protected by the Trustees who may act as a guard against financial ‘fecklessness’ by the beneficiary or third party predators.
Effective use of trusts in wills means that half of the family’s wealth, on the first death, can be preserved by passing assets into the trust rather than outright to the surviving spouse. Should the surviving spouse subsequently need residential or nursing care, for example, the assets within the trust are not included in their care fee assessment.
Discretionary trusts are an increasingly popular solution for estate planning. The trust is created in favour of a class of potential beneficiaries, the trustees can exercise their discretion to benefit anyone within the class, by how much and when. This trust offers greater flexibility than an absolute trust and typically operates alongside a non-legally binding letter of wishes to enable the settlor to provide guidance to the trustees on distributions.
When the funds are held in the discretionary trust, they do not form part of any of the potential beneficiaries’ estates and the trust is subject to tax charges as part of the Relevant Property Regime.
The gift to the trust will be a Chargeable Lifetime Transfer (CLT). On entry, if the value of the gift exceeds the settlor’s available nil rate band, the excess will be chargeable to IHT at 20%.
Family Investment Companies (“FICs”) have become more popular since fundamental changes to the taxation of trusts were made in March 2006. Whereas sizeable transfers to trusts, in the absence of any reliefs, will crystallise inheritance tax charges immediately this is not the case for FICs. A similar feature has also meant that other non-trust structures such as LLPs and Limited Partnerships are also popular.
Furthermore, we are also seeing foundations being used more frequently. These are hybrid vehicles sharing some features with companies and others with trusts. The foundation retains legal and beneficial ownership of any assets and, as such, is thought to be a useful asset protection device.
Individuals of high net worth face a number of risks to their wealth. Assets for example are at risk of attack from business creditors, such as clients, credit card companies, employees, suppliers, partners, shareholders, and the general public.
Putting an asset protection plan in place now, designed specifically for your needs, can provide a level of protection and comfort from such financial ‘predators’.
These are most effective if implemented before any live threats or claims emerge. UK courts are ready to set aside trusts for example that are seen to have been established to shelter assets from claims by creditors.
In simple terms, how your affairs are structured will dictate how effective your asset protection measures will be.
We can advise on the best way to protect your assets without triggering tax liability.
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