Avoiding Inheritance Tax Offshore - An Example

One very valuable piece of reader feedback that we have taken on board recently at ShelterOffshore is that with the wealth of offshore options, alternatives, solutions and structures available it can be very tricky for an individual to determine what it is that they actually require for privacy, tax efficiency or greater returns.

We couldn’t agree more!  Which is why we have our strategic business partners available to all readers to provide personalised solutions for them…but which is also why we thought we’d present an example of how an individual could go about avoiding inheritance tax offshore potentially.  The following is an example for illustration purposes only of how offshore solutions can potentially assist with IHT or estate duty planning.

Please Note - we are not qualified tax advisers - any information we give does not constitute advice.  We always recommend you seek qualified taxation and financial advice.

In our example John Smith is a reader who wishes to sort out his inheritance tax situation so that he can legitimately mitigate as much of his estate’s potential liability upon his death.

Mr. Smith’s Situation: -

Mr. Smith is resident and domiciled in a country where IHT is due only upon the assets he has within that country…but he also has assets and other liabilities elsewhere in the world such as shares in a UK based trading company, a business apartment in Barcelona, a family holiday villa in Orlando in Florida and many collectibles and pieces of art of value in his main residence.

Mr. Smith’s Dilemma: -

His country of domicile, the UK, America and Spain will all want IHT on the assets, property, shares etc., that are physically located within their jurisdiction upon his death.

Mr. Smith’s Offshore Options: -

A) His country of residence/domicile – as with many nations in the world, Mr. Smith’s home country recognises the validity of trusts and allows him to create a trust in which to place certain assets.  The transfer of assets into a trust has to be done carefully so that no taxable action is taken.  If the art collection is placed in the trust and Mr. Smith is considered to still be having full use of the collection whilst claiming to have disassociated himself from the assets, the transfer for IHT avoidance purposes may be negated – but it may be possible for Mr. Smith to pay an annual fee for enjoyment of the collection and to therefore avoid IHT.

B) The UK – shares in the UK trading company can be placed into an offshore trust and no capital gains taxable action should take place because the transfer will be in the form of a ‘sale’ of the shares by a non-resident (Mr. Smith) to another non-resident (the trust) and UK IHT should therefore be avoided.

C) Spain – placing the apartment in Barcelona directly into a trust is not a good idea because this will result in a charge of 3% per year being applied on the property.  Instead the property could be transferred into a Spanish company which could be owned by a correctly located offshore company which can in turn be owned by the offshore trust.

D) USA – USA estate duty could legitimately be avoided if the ownership of the villa in Orlando is transferred to an offshore company whose shares are owned by the offshore trust.  As with all things USA, specialist advice must be taken to ensure Mr. Smith’s actions aren’t going against US anti-avoidance legislation though.

As you can see, there are many legitimate solutions available no matter how complex your personal situation.  If you are high net worth, have valuable assets or a complex inheritance tax situation you really should seek advice.  The solutions available to you may not come cheaply, but think about the overall savings you will be making.  Complete our offshore advice service form if you are looking for assistance.