HMRC crackdown: how to protect your offshore assets
While money sheltered overseas has always been subject to inheritance tax (IHT), new HM Revenue and Customs (HMRC) disclosure requirements mean hundreds of millions of pounds will now become visible to the taxman and completely open to scrutiny for IHT purposes.
However, there are certain tax planning measures you can implement to protect your beneficiaries and make your assets tax efficient and easier to manage once they have been disclosed.
Here, Steve Lawless, global head of banking distribution at Skandia, offers his advice:
“By structuring the disclosed overseas assets into an offshore bond, investors can gain control over the timing and nature of any events that are subject to tax. All taxes are deferred within the structure (except for any withholding taxes) and only on an encashment would a tax situation arise.
“Once these assets become more efficient to manage, the next step is for the investor to mitigate any tax exposure and to protect the assets for their beneficiaries.
“UK IHT is set at a substantial flat rate of 40%. Although investors do have an IHT allowance of £325,000, this allowance is currently fixed until 2019, so will decline in real terms. For many this level is already insufficient to cover their main home, let alone other investments. Placing the offshore bond into a trust can help reduce this IHT liability, therefore helping protect the investor’s wealth.
“Trusts are not just a legitimate way of mitigating tax, they have many other benefits. These include ensuring the right people get the right proportion of assets at the right time. They help provide ways to navigate complex family situations, as well as assuring that funds are available without the delay of probate.
See the box below for examples of trusts
“When putting the assets into trust, an investor should also consider who they appoint as trustee. The role of trustee carries with it significant responsibilities, though it often lands upon friends and family to fulfil. Investors could consider delegating the administrative and legal burden of running a trust to a professional.
“Using an independent corporate trustee when setting up a trust can help ensure trustee duties are followed and on-going consideration of the beneficiaries needs is taken. These duties include reviewing documents, maintaining trust records, filing the appropriate tax return and undertaking yearly trust and asset reviews.
“A corporate trustee will handle the complex task of calculating the tax liability and can add real value to the management of the trust. This will offer investors great comfort and reassurance that the trust is being administered appropriately.
“It is important that investors with overseas assets that have either already been disclosed, or are yet to be disclosed seek professional advice. A financial adviser will be able to restructure the assets accordingly, easing the reporting burden for the investor. If the assets are then placed into a trust, this will help to mitigate any IHT liability. With the IHT tax rate set at 40%, through some careful financial planning, an investor could stand to save thousands.”
A loan trust:
A discounted gift trust: