By Claire Cabot
Many international families require tax efficient structuring to protect and enhance their diversified private fortunes, which have accumulated over many years. The manner in which these assets are to be held and how the chosen vehicles are to be administered requires careful consideration of complex multi-jurisdictional issues.
Numerous international families are in some way connected to the UK, from global entrepreneurs who relocate, to tax exiles from continental Europe. Having a property in London offers lifestyle benefits and it can be argued that Britain's unusually favourable tax regime entices people to live there. International families choose Jersey as an offshore jurisdiction not only because of its symbiotic relationship with the UK and close ties with the City of London, but because of the professional expertise that Jersey has to offer in the administration of tax efficient structures for UK residents.
Where there is a UK connection, whether as a result of the settlor or beneficiary, it is always prudent to have investment restrictions on the investment portfolio.
Typical investment restrictions include:
- No UK assets
- Segregation of income and gains
Valerie Watson, Partner of Moore Stephens London, commented: "Understanding the complexities that surround offshore structures is vital to protecting the initial tax structuring. We often come across structures where the Trustees have not correctly segregated income and capital and this has had serious consequences for the ultimate clients. The administration of an investment portfolio catches lots of Trustees off guard."
The accounting for investment portfolios is often key in the segregation of income and capital. There has to be physical segregation at all levels. The capital account must only ever hold clean capital and capital gains. All income, such as dividends and interest coupons, must be credited to the income account. Difficulties arise when income is incorrectly recorded in the capital account and bond interest is not properly accounted for. There can also be difficulties in holding particular assets where capital gains are taxed as income, either in whole or in part, such as offshore funds or bonds, and these must be managed carefully where the investments are not restricted.
Jersey continues to be a highly attractive offshore jurisdiction for many services and is now ranked in the top ten locations in the world for providing wealth management services. Jersey's ability to provide professional expertise in the administration of tax efficient structures is just one of the reasons why affluent families choose Jersey firms to structure their wealth.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.