Utilising British Trusts: A Guide for Expats for Tax Optimisation
British Trusts, well-regarded financial tools, have been facilitating families and individuals in managing their wealth for centuries. These instruments not only aid in preserving and passing on wealth but also provide an essential means for tax optimisation. For expats, understanding the workings of British trusts and how they may aid in tax management can be an invaluable resource.
Understanding British Trusts
In the UK, a trust is a legal arrangement where one or more 'trustees' are made responsible for holding assets (such as money, property, or shares) on behalf of 'beneficiaries'. There are several types of trusts in Britain, including Bare Trusts, Interest in Possession Trusts, Discretionary Trusts, Accumulation Trusts, and Mixed Trusts, each with its own advantages, rules, and tax implications.
Tax Implications and Benefits
In terms of taxation, trusts can be used to reduce Inheritance Tax (IHT), Capital Gains Tax (CGT), and Income Tax. The tax liability of a trust largely depends on the type of trust, the value of the assets in the trust, and the status of the settlor and beneficiaries.
When assets are put into a trust, they no longer form part of the settlor's estate, which could reduce the IHT liability on the settlor’s death. Trusts can also be used to control access to assets to ensure they are passed on in a tax-efficient way.
How Can Expats Benefit?
Expats, or non-UK residents, can also significantly benefit from British trusts. In cases where the settlor is not UK domiciled or deemed domiciled, they can establish an offshore trust to hold non-UK assets, which are outside the scope of UK IHT.
Furthermore, if an expat has lived in the UK for 15 of the last 20 years, they become 'deemed UK-domiciled' for tax purposes. By establishing an 'Excluded Property Trust' before achieving this status, expats can avoid UK IHT on non-UK assets, even if they later become UK domiciled.
Capital Gains Tax (CGT) is another area where expats can use trusts to their advantage. If you transfer assets that have increased in value into an offshore trust before you become UK resident, the trust will generally not be subject to CGT.
Summary
In summary, British trusts can serve as powerful tools for tax optimisation for both residents and expats alike. It's crucial for expats to seek expert advice to fully understand the implications and benefits as these can vary greatly depending on the individual's personal circumstances, such as residency and domicile status, and the type and location of their assets. By carefully planning and making optimal use of these financial instruments, expats can ensure that their wealth is managed and passed on in the most tax-efficient way possible.
—> Read more about Trusts & how they work in various jurisdictions.
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Disclaimer: This article provides general information about British Trusts and their possible uses for tax optimisation. It does not provide legal or financial advice. Before making any financial decisions, you should seek advice from a financial advisor or tax consultant.