It is now common practice to set up trusts in tax havens. However, not many clients are aware of the benefits UK based trusts can bring. The idea of a UK trust is particularly attractive when beneficiaries and settlors are based in Europe or other onshore countries and the transfer of property is not to be associated with tax havens. In addition, English law (by which the trusts are formed) gives the confidence and security of the UK legal system. A UK incorporated trust provides reliability and reputation to its owners.
The primary trustee of a trust established under England and Wales law must be a person or legal entity resident in the UK. In most cases the trustee will be a professional and licensed UK fiduciary service provider.
UK trusts are generally set up to achieve a specific purpose (some examples are given below). For simple cases where assets are to be distributed to beneficiaries after the trustor's death, a UK trust is not the best solution as such a simple task is better handled in other well-known trust jurisdictions (see Panama Private Foundation for Asset Protection ). A UK trust can be used for the following purposes:
Accumulation of a diverse portfolio of foreign assets into one system for more organized, consistent and professional management. This solution also minimizes your inheritance tax burden and avoids unnecessary inheritance taxes and claims.
As a tax-exempt holding structure. A trust serves as a good holding vehicle especially for customers with several companies in different countries and offers a tax-free and confidential holding structure.
Reduce the burden of exchange control regulations and minimize the burden of inheritance taxes and other types of wealth taxation in your place of residence, as well as removing the link or attachment between property and the place of residence of the heirs.
Ensure the confidentiality of ownership of the assets. Throughout the UK, there is no need to make a trust's legal documents publicly available. This ensures anonymity and confidentiality for the settlor and the beneficiaries.
Avoiding forced inheritance that your country may apply to your wealth.
Ensuring the settler's future plans in the event of death or incapacity for work.
Tax exemptions for UK Trusts
A trust in the UK can be fully exempt from income tax, if the following conditions are met:
One of the trustees is not a UK resident.
All property/estate, shares and any other assets are located outside the UK.
The beneficiaries are non-UK residents.
The settlors are non-UK residents.
According to English/Welsh Law, the first trustee must be a UK-resident individual or company. In most cases, the trustee is a professional and licensed UK trust services provider. In order to benefit from tax exemptions, there must be an additional trustee, domiciled outside the UK. This may be an offshore trust services provider or the client’s legal representative or law firm.
The main components of a UK trust
The settlor establishes a trust and appoints the trustees. In doing so, he or she transfers full ownership of the assets to the trustees.
The trustees are responsible for administrating the assets in favour of the beneficiaries. They may receive an initial recommendation from the settlor on how to manage the trust (instructions can be indicated in the letter of wishes) and must ensure that the rights of the beneficiaries are protected. They have full control over the trust, but are not entitled to any income that it accumulates.
A formal trust deed sets out the arrangement between the settlor and the trustees and the terms of administration.
The beneficiaries are the individuals who benefit from the trust, and may be defined as the settlor’s children or future children. It is common practice to have discretionary beneficiaries, who are not informed in advance of their future and potential interest in the trust.