Jersey Offshore Trusts and Companies have been a popular way to manage people's assets for over half a century. Yet, one of the questions I'm regularly asked is: why should I set-up a Jersey trust? There are myriad reasons, but let's look at the four main ones: tax benefits, political and economic uncertainty, family succession planning and flexibility.
Reason #1: Tax Benefits
One of the main reasons for setting up an offshore Jersey trust is to hold assets in a tax efficient way. To put that into context, once you place assets in a trust, they are no longer yours. The assets are owned by the trustees, most likely the directors of a dedicated trust company you've appointed. Since the assets are no longer yours, there are various taxes you won't have to pay. Historically, Jersey has been favoured as a jurisdiction to shelter assets from tax, but this has expanded to many other jurisdictions over the years.
The two main UK taxes that can be mitigated are Inheritance Tax and Capital Gains Tax.
To illustrate some of the tax benefits, let’s look at an overseas client who wants to invest in UK commercial property (not residential) or the UK Stock Market. If the client holds these assets in his own name, he is liable to UK Inheritance Tax.
Inheritance Tax is a very large tax, based on 40% of the value of the UK assets held at the time of death.
If the client owned a UK commercial property valued at £3 million at their death, their family could be faced with a tax bill of over £1 million. By holding the property in a simple Jersey structure, the Inheritance Tax liability on death would not arise.
A simple Jersey structure can also be used by UK residents to avoid or defer Capital Gains Tax (CGT) on the sale of UK assets with the exception of UK residential property. If the client realised a gain of £1 million on the disposal, the UK CGT at 28% would be approximately £280,000. This gain can be protected in the structure. It should be noted however that a trust settled by a UK domiciled individual would have adverse UK Inheritance Tax implications.
Reason #2: Political and Economic Uncertainty
Trusts have a long history and are well established as a means to protect and grow your assets in the face of global uncertainty.
We have clients from many countries that are potentially liable to political and economic unrest.
A trust can protect against:
Holding funds in a stable, tax neutral country such as Jersey, in a strong based currency such as Sterling, Dollars or Euros can safeguard against potential loss.
By having a Jersey structure, the client is confident that the funds are immediately available, not devaluing and not liable to political interference.
Tax is often a secondary issue for these clients. In many African jurisdictions the tax structure means they are not taxed until they want that money back, which typically means they put any spare cash they have into the trust. Alternatively, in some jurisdictions, the trustees provide the information for their tax returns and pay tax on the income and gains in return for the protection.
Typically, these clients are looking for fairly low risk investments and many put the funds into a straightforward fixed interest bond portfolio that doesn't require too much management.
The trust is often managed by us for many generations, as their children are likely to have the same issues.
Reason #3: Family Succession Planning
Until recently, a Jersey trust was only allowed to be established for 100 years. Jersey Law has now been changed and it can now run forever, allowing valuable family assets to be passed down through generations.
We have had one family as a client since 1936 and are now dealing with the grandchildren of the original client. The children and grandchildren have moved to other countries but have left the assets under the control of the trustees for safeguarding.
Inheritance Tax rules are still popular in many countries of the world. These rules require you to leave a certain amount to your wife, your child and in some countries to your eldest son in your Will. This can be avoided by using a Jersey structure.
A trust protects beneficiaries who may be financially unsophisticated and require help, or children who are spendthrifts. This type of trust can also be used for protection of assets during divorce, although a few jurisdictions are attempting to look through the offshore trust structure.
Reason #4: Flexibility
An offshore Jersey Trust is a flexible vehicle for wealthy individuals and families. A discretionary trust gives the trustees full discretion over the assets of the trust and the ability to change the structure and strategy of those assets.
This allows the trust to adapt quickly if there are changes in the tax law and/or if the beneficiaries emigrate to a new country. For example, recent changes to the Inheritance Tax rules on UK residential property have led to trustees selling this type of property and investing in different types of assets such as commercial or stocks and shares which are still tax efficient to hold in an offshore structure.
If you need help and advice on setting up a trust call us on +44 (0) 1534 753777