Setting Up An Excluded Property Trust In Cyprus – A Flexible Solution For International Wealth And Estate Planning

In today's globalised world, individuals and families often hold assets in multiple countries. Managing those assets efficiently and protecting them for future generations has become a vital part of modern wealth planning. One structure that offers both flexibility and long-term security is the Excluded Property Trust.

This type of trust is particularly useful for those with connections with the United Kingdom but are not classified as UK-domiciled. Well-settled, an Excluded Property Trust (EPT) can remove foreign assets beyond UK inheritance tax reach while allowing the assets to be well safeguarded for the selected family members or beneficiaries. Cyprus, boasting a sound legal system and a favourable tax system, is an appropriate jurisdiction in which to set up and manage such trusts.

What is an Excluded Property Trust

In simple terms, an Excluded Property Trust is a legal arrangement whereby a person not resident in the UK can put title in non-UK assets into trust. From the moment this is done, these assets become "excluded property" and are no longer covered by UK inheritance tax even if the individual later moves to the UK or becomes domiciled in the UK.

The critical condition is that the trust must be created when the settlor himself is non-domiciled and that the trust should be with assets placed outside the United Kingdom. When such conditions are met, the trust can yield significant inheritance tax relief as well as serve as an excellent vehicle for estate planning, family asset management, as well as long-term asset protection.

Why choose Cyprus for the creation of an EPT

Cyprus has built a name as one of the premier jurisdictions for international trust and estate planning. The Cyprus International Trusts Law of 1992, as amended, offers a cutting-edge and adaptable regime founded on English common law principles. It provides stringent protection for trust assets and accepts a broad variety of settlor and beneficiary arrangements, and so it is widely appealing to international clients.

Under Cypriot law, a trust is extremely confidential as the trust deed is not registered publicly. Bare essentials are required only to be lodged with the concerned authorities under anti-money-laundering legislation, and that too is not available to the public. Further, Cyprus does not feature forced heirship provisions, which means that the wishes of a settlor specified under the trust deed will prevail regardless of the inheritance laws of other countries.

One of the benefits is that income and profits from sources other than in Cyprus do not become subjects for local taxation, provided the beneficiaries are not Cyprus tax residents. Coupled with the island's professional services infrastructure and stable legal system, this renders Cyprus an extremely efficient and dependable jurisdiction for the administration of excluded property trusts.

Establishing an EPT in Cyprus

Setting up an EPT in Cyprus begins with good planning. The settlor must confirm their non-UK domicile and identify what property can be classed as non-UK property. These tend to be offshore investments, overseas bank accounts, or units in non-UK companies. Professional tax and legal advice in both the UK and Cyprus should be obtained before proceeding, to ensure the trust achieves the sought-after tax implications.

The second step is to appoint one or more than one trustee, one of whom has to be resident in Cyprus for the trust to be a Cyprus International Trust. The trustee acquires the legal title of the trust property and manages the property as provided in the trust deed but always in the interest of the beneficiaries.

The trust deed itself is the cornerstone of the arrangement. It states who the beneficiaries are, under what conditions and when distributions may be made, and lays down the powers of the trustees. It also retains the power to appoint or remove the trustees or to alter the terms of the trust in specific situations for the settlor. Once the deed is finalized and executed, the properties are transferred into the trust and registered with the Cyprus authorities in accordance with regulations.

Upon establishment, the trustees take over the management and administration of the trust under the deed and applicable law. Regular checks are recommended to ensure ongoing compliance with both Cyprus and UK taxation law, particularly as domicile rules and inheritance tax by the UK evolve.

An EPT in Cyprus has a set of real advantages. It allows families to protect and grow their assets in an efficient tax way and in a confidential manner, ensures easy succession planning, and provides assurance that assets are invested with professional trustees under a secure legal regime.

But as with all cross-border arrangements, vigilant ongoing management is required. Changes in UK tax law, could in the future affect how excluded property trusts are taxed. Professional advice should therefore be taken from time to time to maintain the structure in full working order and compliant.

The utility of the Cyprus Excluded Property Trust

A Cyprus-based EPT remains an acceptable and viable planning tool for individuals who are not UK-domiciled but have worldwide assets and family connections. It combines the security of a highly respected common-law jurisdiction with tax effectiveness and adaptability that worldwide families require.

If well established and implemented, such a trust can ensure that the wealth is sustained, protected, and passed on effectively, bringing long-term gains to both current and future generations.

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.