Offshore Trusts and UK Tax

In his latest budget, the Chancellor of the Exchequer Gordon Brown managed to close yet another loophole that had been allowing some UK residents to legally avoid taxation on property assets through the use of an offshore trust structure.

Offshore trusts are increasingly used particularly by high net worth individuals to assist with their overall tax planning strategies, but at the same time it is becoming increasingly difficult to save UK tax with an offshore trust!

The latest clampdown by Gordon Brown could net the government a cool five hundred million pounds in lost revenue according to industry insiders – although the Chancellor was more modest with his predictions of recouping ‘just’ fifty million.  The clampdown sees the abolition of seeding relief which was used by property owners who placed their real estate assets into offshore unit trust structures to avoid stamp duty.

This is just the latest in a long line of measures the UK government has brought about to remove the overall tax efficiency of offshore trusts, but the offshore financial industry also remains on its toes and seeks to exploit any loopholes created or anomalies found! 

In 2000 for example the government introduced legislation to counter the avoidance of capital gains tax from income derived from offshore trusts.  But the legislation did not quite go far enough and actions known as ‘flip flops’ were introduced by those seeking to legally avoid taxation whereby gains were flipped from trust to trust.  In 2003 the government then brought in new legislation to close this loophole thus “putting the matter beyond doubt by introducing remedial legislation”!

The complexity of the subject of offshore trusts and UK tax means that it is imperative that anyone considering exploring the potential advantages of placing assets into an overseas trust structure seek expert and ongoing guidance from an offshore trust specialist.  The rule, laws and potential advantages of an offshore trust structure change all the time and are also dependent on an individual’s own circumstances therefore we at ShelterOffshore always advocate the use of a professional offshore trust service to ensure no laws are broken and all advantages are utilised.