A UK trust: an EU trust solution
It is now common practice to establish trusts in tax haven jurisdictions. Not many clients, however, are aware of the advantages that UK-established trusts can bring. The idea of a UK trust is especially attractive when beneficiaries and settlors are located in Europe or other onshore countries and do not wish the transfer of property to be associated with tax havens. Moreover, the law of England (under which the trusts get incorporated) confer the confidence and security of the UK legal system. A trust established in the UK offers reliability and reputation to its owners.
The first trustee of a trust established under the Law of England and Wales must be a UK-resident individual or company. In most cases, the trustee is a professional and licensed UK trust services provider. Contact Confidus now to set up your trust.
UK trusts are generally established in order to fulfil a certain goal (a few examples are listed below). For simple cases where assets are to be distributed to the beneficiaries after the settlor’s death, a UK trust will not be the best solution, as such a straightforward task is better handled in other well-known trust jurisdictions (see Panama private foundation for asset protection). A UK trust may be used for the following purposes:
- Accumulating a diverse portfolio of foreign assets into one system for better organised, unified and professional administration. This solution also minimises your exposure to estate taxes and cuts out unnecessary estate duties and requirements.
- As a tax-exempt holding structure. A trust serves as a good holding vehicle, especially for clients with several companies in different countries, offering a tax-free and confidential holding structure.
- Reducing the burden of exchange control regulations and minimising exposure to inheritance taxes and other types of property taxation in your place of residence, and breaking the association or attachment between the owned assets and the heirs’ place of residence.
- Achieving confidentiality with respect to the ownership of the assets. Throughout the UK, a trust’s legal documents do not need to be made publicly available. This provides anonymity and confidentiality for the settlor and the beneficiaries.
- Avoiding forced heirship regulation, which your country may apply to your assets.
- Guaranteeing the settlor’s plans for the future in case of death or incapacity.
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.
- Trust deed
- 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.
UK trusts can grant their owners a reliable and reputable onshore location. Structured properly, UK trusts can be very attractive in terms of taxation, security and the confidentiality of assets. English/Welsh law offer the protection of the UK legal system.
This is a great solution for non-UK resident individuals, who own property and generate income outside the UK.
If you would like more information about UK trusts, take a look at our F.A.Q. section section or call our agents now.