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Following the release of the Panama Papers and other such ‘leaks’ over the last few years you might be forgiven for thinking that everyone had an offshore trust – whether politician, sportsman or business man.
However, from a UK perspective, and in relation to trusts, the Panama Papers was old news. For many years, if you are UK resident and UK domiciled then offshore trusts have provided you with no benefit at all. This is down to the plethora of anti-avoidance rules which exist in this area.
So whereas, at the basic level, the use of a non-resident trustee might protect the income and gains of a trust, where a settlor or a beneficiary is closely connected to the UK then the income and /or gains may be attributed to them and be taxable.
Offshore trusts may still have some benefit for non-doms and for non-resident investors.
As you will see from the relevant page and video on non-doms, there have been significant changes in that area. Those changes, perhaps unsurprisingly, also extend to trusts that are used by those affected by the Finance Act 2017.
These trusts are called ‘protected trusts’ going forward. They provide relief from the income tax and CGT anti-avoidance rules which would otherwise bite as a result of becoming deemed domiciled. These rules are complex and should be read carefully before acting in relation to affected trusts.
Historically, offshore trusts have also been used to protect non-doms assets from the UK IHT net. This has been done by establishing an overseas structure known as an excluded property trust. Where this was created prior to becoming deemed domiciled then the assets in the trust would remain outside of the scope of UK IHT even where the individual becomes deemed domiciled in the UK.
Needless to say, this is a very complex area of tax law. If you have an existing structure, or are considering setting up a structure, we would recommend you obtain and continue to obtain proper professional advice.