Report Summary:

  • Uses of Gibraltar trusts.
  • Asset Protection trusts.
  • Practical considerations.

Uses of Gibraltar trusts

The development of Gibraltar's offshore trust business has been linked with the growth in its importance as a banking centre for private clients.

Much of the initial trust work in this area developed as a result of Gibraltar's position as part of the Iberian Peninsula, from which expatriate work (from both Spain and Portugal) was attracted. Typically such individuals are foreign nationals (for example British, Scandinavian and other Northern Europeans) settling in Spain or Portugal and establishing discretionary trust arrangements prior to acquiring residence.

The use of Gibraltar trusts has now extended to involve clients from a fully international spectrum including in particular the United States, South America, and other parts of Europe.

Gibraltar has sought and established a specific low-volume niche position in the area of asset protection trusts. Although the establishment of this type of trust is regarded as controversial by many practitioners, the attitude adopted by Gibraltar is that with proper regulation these trusts can be valuable vehicles that can facilitate estate planning and enhance the benefits of establishing trusts in a foreign jurisdiction.

Asset Protection trust

In 1990 Gibraltar amended its legislation to establish trusts designed to provide a higher degree of creditor protection provided that key requirements are met. Trusts that meet such requirements are not subject to the provisions of the Elizabethan statute by virtue of the new legislation.

By virtue of the new legislation introduced as an amendment to the Bankruptcy Ordinance, a disposition of property into a trust is deemed not to be voidable at the insistence of any creditor of the settlor, if at the time of the disposition the settlor is not insolvent and does not become insolvent inconsequence thereof.

The rules only apply to an individual and require the disposition to be registered in accordance with published regulations.

It is important to highlight that the Gibraltar legislation focuses primarily on solvency as a determining factor in ensuring the validity of such a trust and the capacity to withstand attack in the future.

"Gibraltar's offshore trust business caters for international clients, particularly from the United States, South America and other parts of Europe"

The regulations for the asset protection trust legislation are designed to safeguard as far as possible that there is no abuse of the provisions of the legislation. It is specifically required that any proposed trustee of an asset protection trust is authorised by the Gibraltar authorities to have the adequate financial and administrative resources to act as such.

There is further the requirement that any such trustee has obtained the approval of the authorities to the method used by it in determining the settlor's solvency and that it should have a level of professional indemnity insurance considered adequate by the Gibraltar authorities and in any event not less than the sum of £1m.

Practical considerations regarding Gibraltar trusts

A trust deed governed under Gibraltar law will be a form very familiar to those used in similar English based jurisdictions. Other than in the context of asset protection trusts there is no register of filing requirements of any type thereby making the trust an entirely private arrangement. All trust companies operating from Gibraltar are required to be licensed under our financial services legislation and to be subject to ongoing supervision. Licensing is not, however, necessary in the case of a single purpose company owned by those establishing a trust in such manner that it does not hold itself out as offering trustee services to third parties.

Gibraltar's income tax legislation specifically requires that a trust established by a non resident of Gibraltar exclusively for the benefit of non residents is not chargeable to income tax on any of the gains or profits made by the trust. This is the case whether the trust property is located in Gibraltar or elsewhere. There is no capital gains tax or value added tax, wealth tax, or any other tax or payment that would in any way affect such a non resident trust.

"Income tax is not chargeable on any gains or profits made by a trust established by a non resident of Gibraltar exclusively for the benefit of non residents"

Stamp duty is not chargeable on a non resident trust, although it is usual to charge a nominal amount on the instrument. Furthermore there are no exchange controls or other permits required for the transfer of monies to or from Gibraltar.

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.