Guernsey

Family Offices: Steps, Stages and Structures – Private Trust Companies and the Guernsey Private Foundation

There are a variety of structures and arrangements available to Individuals and their families both for estate and succession planning and to protect their assets from uncertainty and volatility.

Modern families are increasingly mobile and it is common for family members to move to new countries to study, work, establish businesses or settle down. As families become more geographically diverse the complexity of administering family estates and assets along with cross border, succession and estate planning matters, increases.

Steps, Stages and Structures

Many families will have complex affairs yet not be of sufficient size to warrant the establishment of a dedicated single-family office. For these families there are various alternatives through which the family may transition.

Pooled and enhanced fiduciary support

The family may consider transferring the administration of their holding entities to a professional licensed fiduciary with whom the family has an existing relationship or who has been recommended by a trusted advisor.

These structures may take the form of a Discretionary Trust or Foundation. The Trustee or Foundation Council can then be tasked with assisting the transition the family’s affairs into a standalone family office position, utilising their knowledge, experience and existing resources of qualified staff and policies and procedures. At this stage efficiencies are created in the management and administration of the structures under a single provider, the family / advisor relationship is reinforced, and additional cost savings often result.

Private Trust Company (PTC)

For many years the PTC has been the preferred vehicle for administering the assets of wealthy families and many variants have emerged across the various financial centres which specialise in providing them and whose legislation and regulation are particularly suited to private wealth management.

One of the main attractions of the PTC being those decisions, relating to the underlying trusts and assets, are made by directors who are carefully chosen by the family or may even be family members.

There are a number of variants of the PTC, which can be limited by either shares or guarantee or even with separate classes of shares for voting purposes.  Consideration as to the level of control exerted over the PTC needs to be carefully considered as too much control can lead to tax implications. The most common solution to the control issue has been to hold shares in the PTC through a purpose trust (see diagram), which creates additional layers of ownership and administration.

Whilst PTC’s remain a popular specialist solution, Guernsey can also offer a simpler structure through the Private Trust Foundation (PTF).

Private Trust Foundation (PTF)

The PTF removes the need for any ownership layers above the PTC and can simplify the structure and therefore administration and cost (see diagram). The PTF is established under the Foundations (Guernsey) Law 2012 (the “Law”) with the sole purpose of acting as trustee of the trusts for the benefit of an individual or family.

The Law makes it clear that a Guernsey Foundation, upon establishment, has its own legal personality, independent from that of its founder and any foundation officials.

Diagram: The Classic Private Trust Company Structure and Alternative Guernsey Foundation Solution

The Guernsey PTF will be run and managed in a similar way to a PTC with the involvement of a professional licensed fiduciary, but with the significant advantage that, as an orphan vehicle, it does not have any other owners or controllers.

Additionally, family members or other trusted advisors can be appointed to the PTF council, which is responsible for acting as trustee to the underlying family trusts.

Managed Services

The penultimate stage, in the route to establishing a full standalone family office directly employing appropriately experienced staff in the jurisdiction of choice, is managed support from a fiduciary provider.

This support can include dedicated serviced office space such as the Dixcart Business Centre in St Peter Port, Guernsey together with business facilities, fiduciary, accounting and legal support, with a view to the fiduciary provider helping to grow and develop the position into a standalone family office operating independently.

Additional Information

For further information on private wealth structures and their management, please contact John Nelson, Managing Director, Dixcart Trust Corporation Limited, Guernsey: john.nelson@dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Cyprus - beach with rock formations

Cyprus International Trusts: An Explanation and Why Consider Using One?

Introduction to Cyprus Trust Legislation

Trusts in Cyprus can be established either as domestic trusts under the Trustee Law or as Cyprus International Trusts (CITs), or under the Cyprus International Trusts Law. A Cyprus International Trust is an English common-law-based legal vehicle.


The Cyprus International Trust Law has undergone major reform and the law introduced in early 2012 (Law20(I)/2012, which amends the 1992 law) is said to have transformed the Cyprus Trust Regime into the most favourable Trust Regime in Europe.


In 2021 Cyprus fully implemented the provisions of the 5th Anti-Money Laundering EU Directive 2018/843 and the register of beneficial owners of express Trusts and similar arrangements was established, which is administered by the Cyprus Securities and Exchange Commission (“CySEC”).

Why Cyprus?

Cyprus is a prominent fiscal international centre which provides attractive opportunities for setting up and operating a trust.
Some of reasons why a CIT may be used, are as follows:

  • To hold property for minors or successive generations of a family
  • To provide how the assets of the settlor will be divided between his family, without forced heirship limitations;
  • To cater to a person who cannot take care of him/herself due to old age or mental incapacity;
  • To provide benefits to underage people;
  • As an investment vehicle

Requirements for the creation of a valid Cyprus International Trusts

The Law defines a Cyprus International Trust as having the following characteristics:

  • The Settlor, whether a physical or legal person, must not be a resident of Cyprus during the calendar year, which precedes the year of creation of the Trust;
  • The Beneficiaries, either physical or legal persons, except for a charitable institution, must not be resident of Cyprus during the calendar year, which precedes the year of creation of the trust; and
  • At least one of the Trustees is, throughout the lifetime of the trust, must be a resident of Cyprus.

Benefits

Cyprus International Trusts are widely utilised by high net wealth individuals for asset protection, tax planning and wealth management.
Some of the benefits a Cyprus International Trusts can offer are as follows:

  • Asset protection against creditors, forced heirship rules or legal action;
  • Difficult to challenge, as the only reason it can be challenged is in the circumstances where creditors are being defrauded. The burden of proof in this case lies on the creditors;
  • Confidentiality (as far as permitted by relevant laws)
  • Preservation of family wealth and gradual distribution of income and capital to the Beneficiaries;
  • Flexibility in relation to the powers of the Trustee;
  • Tax benefits for the parties involved;
    • No Capital Gains Tax is paid on the disposal of assets of a Cyprus Trust
    • No estate or inheritance tax
    • Income received from local or overseas sources is taxable in Cyprus where the beneficiary is a Cyprus tax resident. If beneficiaries are non-tax residents of Cyprus, only Cyprus sources of income are taxable under Cyprus’s income tax law.

Our services

  • We advise clients about the creation of a CIT, including proposing structuring ideas for creating and operating a CIT,
  • We draft all required legal documents,
  • We set up private trustee companies (PTCs) in Cyprus and in other jurisdictions,
  • We advise clients and trustees about issues arising in relation to a CIT Including trustee powers, beneficiary rights and interpretation of trust deeds.

Why us

Dixcart has been providing professional expertise to organisations and individuals for over 50 years. We are an independent group and are proud of our experienced teams of highly qualified, professional staff who offer international business support services around the world. Dixcart work closely with professional intermediaries worldwide. These include accountants, fiduciaries, and lawyers.

Dixcart Management (Cyprus) Limited can assist you in every step of the creation of a Cyprus International Trust.

Additional Information
For further information about the Cyprus International Trust, please contact Charalambos Pittas or Katrien de Poorter at the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

The Benefits of Establishing a Family Office in Cyprus

Introduction

Families are becoming more and more mobile. There are many attractive residence schemes available around the world, which have added to the popularity of moving to different countries. As this trend continues the management and control of family wealth across jurisdictions becomes even more vital.  

Cyprus is well known as a lively international business centre, with a straightforward and attractive tax regime for foreign investors. Its geographical location, advanced infrastructure, business orientated environment and high level of professional services, are all factors that contribute to the benefit of establishing a Cyprus Family Office that can be used to preserve and grow the Family’s wealth for the next generation.

What is a Family Office?

A family office is generally a private company engaged by a single family or a group of families to manage all of their financial and legal affairs.

What Services are Offered by a Family Office?

Family office services generally involve the management of the following activities:

  • Accounting and reporting: the family office needs to provide timely and accurate accounting, tax and performance reporting.
  • Assistance in avoiding Intergenerational conflict.
  • Direct investments: many families will have made their money through operating a business, real estate developments, private equity investing or entrepreneurial activities. These skills can be applied to increase the family’s wealth through direct investments in similar enterprises.
  • Education of younger generations about their future responsibilities.
  • Investment management: a primary task is to manage the wealth effectively, on a large scale and over many decades. This is probably the most challenging and critical issue for most families.
  • Management of a family-owned business: a forum for discussing how such a business will be managed and governed.
  • Philanthropy: the pursuit of fulfilling charitable projects for the family.

What Should you be Looking for in a Family Office Provider?

There are a number of important points to take into account when selecting a provider of family office services, including,

professional expertise; in asset management, taxation and succession planning.

Other important factors to consider are:

  • A legal or fiduciary professional who is not tied in to any one bank, investment manager or fund adviser. This helps to ensure impartiality of advice and allows for the selection of appropriate third-party support, free from any conflict of interest.
  • Providers who have multi-jurisdictional coverage either through their own offices or through a global network or association membership. This helps achieve a well-coordinated organisation of a family’s global affairs.
  • A provider with proven experience in dealing with family office positions or, at minimum, complex, multi-jurisdictional and multi-generational structures.

Provision of Family Office Services by Dixcart

Dixcart Cyprus is experienced in offering Family Office services to its clients. At Dixcart Management (Cyprus) Limited we are happy to gain an in-depth understanding of your needs and to propose appropriate structures, and support for your Family Office.

If you require any additional information, please speak to your usual Dixcart contact or to the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time

United Kingdom - pier at sunset

Assets in the UK and Inheritance Tax – Planning Opportunities Available for Certain Individuals

Background

It is important that UK inheritance tax is taken into careful consideration, in particular by individuals who have assets in the UK.

This Information Note examines how, with careful planning, some UK inheritance tax obligations can be mitigated for certain individuals.

What is UK Inheritance Tax?

UK inheritance tax (IHT) is a tax on money or assets held at death, and on some gifts made during a lifetime (most importantly those gifts made less than 7 years prior to death).

A certain amount can however be passed on tax-free. This is known as the ‘tax-free allowance’ and/or the ‘nil rate band’.

Each individual has a tax-free inheritance tax allowance of £325,000. This allowance has remained the same since 2010/11.

On death, inheritance tax in the UK is at a rate of 40%.

Additional Nil Rate Allowance

Individuals, with an estate value greater than their tax-free allowance of £325,000, due to the value of their home, may be able to take advantage of an additional tax-free allowance known as the  residence nil rate band (RNRB).

This additional tax allowance is worth up to £175,000 (2023/24), and is available when an individual’s main residence is passed to their children or grandchildren.

Does UK Inheritance Tax Apply to a Non-UK Tax Resident?

The UK inheritance rules are different depending on a person’s domicile.  The concept of domicile is based on a complex set of laws (outside the scope of this note). However as a broad overview, an individual is domiciled where he/she considers his/her home to be.  There may also be estate or inheritance taxation liabilities in other jurisdictions.  Therefore local advice should be taken in any jurisdiction where taxes might be chargeable.

For UK inheritance tax purposes, there are three categories of domicile:

  • UK Domiciled – the worldwide assets of the individual will be subject to UK inheritance tax, whether the individual is UK resident or not.
  • Non UK Domiciled (“non-dom”) – the assets of the individual, situated in the UK, will be subject to UK inheritance tax irrespective of whether the individual is UK resident or not.
  • Deemed UK Domiciled – where an individual is a non-dom but has lived in the UK in 15 out of 20 tax years. According to UK inheritance tax rules he/she is considered to be UK domiciled and his/her worldwide assets will therefore be subject to inheritance tax on his/her death.

When an individual moves to the UK, dependent on all of the circumstances of the move and the new life adopted in the UK, there may be an argument that an individual has immediately become UK domiciled.  When this is not the situation, once an individual has lived in the UK for 15 years he/she will be deemed domiciled for UK inheritance tax purposes.

As is often the case, a complex set of laws is best considered through explanatory examples.

Explanatory Examples

Tom is an Australian citizen, he was born in Australia and has always lived and worked there. He is a non-dom in the UK and has a net worth of £5m.  He is divorced with one child aged 19.

Tom’s child, Harry, chooses to study at a university in the UK and Tom is aware that UK real estate has, over the last few years, shown some good returns.

Tom purchases a property in his sole name, mortgage free, near to his son’s university in the UK for £500,000, for his child to live in while studying in the UK.

Planning opportunity – 1

Even though Tom is not UK tax resident and is a UK non-dom, any assets that he has in his own name situated in the UK are subject to UK inheritance tax on his death.  If Tom dies while owning the property, leaving his whole estate to Harry, there will be a tax liability of £70,000 on his death.  This is 40% of the value of the property above the £325,000 nil rate band, assuming that Tom has no other UK assets.

  • Tom could have considered purchasing the property jointly in the name of himself and his son. Had he done so, on his death, the value of his UK asset would have been £250,000.  This is below the nil rate band threshold and therefore no UK inheritance tax would be payable.

Planning opportunity – 2

Tom is getting close to retirement and decides to move to the UK to be with his child, who has settled in the UK after finishing university.   He sells his Australian home but keeps his Australian bank accounts and other investments and is still considering that he may return to Australia at some point in the future.  He sends £1m over to a newly opened UK bank account before moving to the UK, to live on, once in the UK.

  • Tom would be better advised to remit these funds to a tax neutral, sterling jurisdiction, such as Guernsey or the Isle of Man. If Tom was to die before becoming domiciled for UK inheritance tax purposes, these funds would then be outside the inheritance tax net.
  • By structuring such an account correctly, Tom could bring ‘capital only’ to the UK and thereby avoid any obligation to pay income tax. Please contact Dixcart to take advice on this topic, prior to moving to the UK.

Planning opportunity – 3

Tom dies having lived in the UK for 25 years of his retirement.  He leaves his whole estate to his son.  As Tom was deemed domiciled at death, his entire worldwide estate, not just his UK situated assets, will be subject to UK inheritance tax at 40%, except for the nil rate band at the time of his death.  If his estate is still worth £5m, the inheritance tax payable will be £1.87m at current rates and nil rate band.

  • Before Tom became deemed domiciled in the UK, he could have settled the non-UK assets he still had, into a non-UK resident discretionary trust (traditionally in a tax neutral jurisdiction). This would place those assets outside his UK estate for UK inheritance tax purposes. Following Tom’s death the trustees could have distributed the trust assets to Harry; achieving the same results as a will, but passing on the assets free from inheritance tax liabilities.

Planning opportunity – 4

Following Tom’s death, his son Harry, decides to leave the UK for New Zealand, having lived in the UK for the previous 30 years.  He sells all of his properties and other assets and deposits the proceeds in a New Zealand bank account. He dies within a year of moving to New Zealand.

As Harry only left the UK a year prior to his death, he will still have been UK resident for more than 15 of the previous 20 years.  He will therefore still be considered UK deemed-domiciled at death and his entire estate would be taxable to UK inheritance tax at 40%, even though he had no assets in the UK on his death.

  • Rather than the trustees distributing the assets to Harry on his father’s death, it might have been prudent for the trustees to only distribute assets as needed by Harry over time. This would mean that the entire estate would not be in his name on his death and would not therefore be subject to inheritance tax in the UK.  The assets would remain in the trust and be available for future generations of the family. Advice should be taken on distributions from a trust to ensure that these are as tax efficient as possible.

Summary and Additional Information

UK inheritance tax is a complex issue. In particular for individuals with assets in the UK. Careful consideration and advice need to be taken regarding the best manner to structure the holding of these assets.

Advice should be taken as early as possible and should be reviewed regularly, to allow for any changes in the law and/or family circumstances. If you require additional information on this topic, please contact the Dixcart office in the UK: advice.uk@dixcart.com

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time.

United Kingdom - pier at sunset

Family Office Management: Location, Organisation, and Liaison

Changes in terms of global tax regulations and increasing international tax transparency are vital to consider when implementing strategies to preserve family wealth and family business ownership structures.

To help address tax avoidance, the Organisation for Economic Co-operation and Development’s (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project has built on the original measures applying to large multinational businesses, by implementing a two-pillar approach. Pillar Two relates to new global minimum tax rules and aims to ensure income is taxed and paid at an appropriate rate. These new rules are in addition to the familiar regulations such as the Common Reporting Standard (‘CRS’), the US Foreign Accounting Tax Compliance Act (‘FATCA’), Substance Requirements, and ultimate beneficial ownership registers.

Dixcart Expertise in Relation to Wealth Structures

Dixcart are familiar with the issues facing families in an ever-changing international world.

We provide advice in terms of the location of family offices, their members, and businesses, as well as offering management and coordination for family offices, and liaison across the family members. We also provide trustee services in a number of jurisdictions.

Location

It is very important to consider where each of the relevant family members are resident and also where they are tax resident.

Structuring options also need to be considered and/or reviewed. The use and location of holding companies and/or family wealth protection vehicles such as; family investment companies, foundations, trusts needs to be planned carefully.

International investment structures need to be evaluated, including the holding of real estate, from a tax and asset protection perspective, in particular in relation to ‘BEPS.’

Organisation

Key areas that need to be organised to ensure that a Family Office runs as efficiently as possible and achieves its objectives include:

Confidentiality Management

A procedure needs to be developed to deal with relevant confidential information requests from financial institutions and third parties.

Contingency Planning

Rules and procedures should be in place to protect the family business in the case of unexpected events:

  • Policies and procedures to underwrite business continuity.
  • Use of appropriate legal structures to provide as much asset and wealth protection as possible.
  • Consideration of ‘citizenship by investment’ programmes in reputable jurisdictions, to provide options for the tax residence of family members to be diversified.

Family Governance

  • Successors need to be identified and their role discussed with them.
  • The development of open communication amongst family members regarding decision making strategies and processes.
  • A ‘Family Constitution’ is a useful way to formalise family governance and to prevent potential future conflict.
  • Creation or identification of education and training programmes, to groom the next generation.

Family Office Advisory Services

  • The segregation of the family’s wealth from the family business(es), should be considered.
  • Development of a strategy regarding use of the profits arising from the family business and investments, that are not going to be re-invested.
  • Creation of a team to manage the wealth.

Succession and Inheritance Planning

  • Establishment and/or review of policies and procedures to ensure the adequate preservation and transfer of wealth to the next generation.
  • A review of the ownership structure of each family business and other relevant assets.
  • Understand how relevant local laws would apply, in relation to inheritance (for example; Civil Law, Sharia Rules etc.).
  • Putting in place the most appropriate legal structures such as wills or other legal vehicles to pass wealth to the next generation.

Liaison

Time must be taken, by those managing the Family Office, to establish and develop close relationships with the relevant family and with other professionals advising them. Dixcart believe this relationship is critical.

As well as providing technical expertise in terms of structuring, professionals at Dixcart also understand family dynamics and frequently assist in offering advice as to how to improve communication and how to avoid potential conflict.

Additional Information

If you would like further information regarding a well-considered and comprehensive approach towards succession planning, please speak to your usual Dixcart contact or to a member of the professional team at the Dixcart office in the UK: advice.uk@dixcart.com

Overseas Investors Thinking of Investing in UK Real Estate

Can Anyone Invest in a UK Real Estate Even Without a UK Passport?

Yes.  Foreign individuals (over the age of 18) and corporate entities (subject to being registered at Companies House) may purchase or invest in UK real estate.

What Types of Investment can be made?

There are many ways to invest in UK real estate. Some of the more conventional routes in England and Wales include:

  • Ownership of a legal “estate” in land to realise capital appreciation

An estate is an abstract entity carried on from medieval times and used to describe nothing more than time in the land.  The most common forms of estate ownership are freehold (owning land in perpetuity or “forever”) and leasehold (owning land for a number of years). Generally a term of years in a lease of property will be born out of a freehold estate or a leasehold estate for a term longer than the one in question. The owner of a term of years in a leasehold interest will be a tenant.

  • Buy to let investments

A purchaser can acquire a freehold or leasehold interest (as above) specifically to rent it out to reap the rewards of a rental income. An investor will be looking closely for high net yields when deciding what to invest in and where.

  • Real Estate Investment Trust (or REIT)

Providing an easier and lower cost way to invest in  property, a UK REIT (often holding a portfolio of property) provides a way to invest in buy-to-let property without having to buy property directly.  UK REITs benefit from an exemption from UK tax on both rental income and gains relating to their property investment business allowing them to redistribute up to 90% of rental income to their shareholders.

  • Property development

This can take many forms. You might wish to buy land and sell it onto a developer having secured planning permission over it; buy an existing commercial building and apply for planning to convert it into residential property, convert adjoining houses into one large property and letting it out as a house with multiple occupation and so on.

You Have Identified a Property, What Next ?

Let the buyer beware

In the UK, a seller of  land has limited duties of disclosure to a purchaser because of the principle of caveat emptor (let the buyer beware).  In effect, a purchaser buys at its own risk. It is therefore important to instruct a property solicitor to carry out the usual pre-contract investigations on “title”, apply for the relevant searches and raise relevant enquiries of the seller. Careful investigation should minimise risk whilst flushing out any potential burdens and obligations that decrease value.

Site inspection

It is also advisable to carry out a site inspection and note any discrepancies between the plans and what is on the ground. You will also want to check for signs of the presence of occupiers,  rights of way and/or to carry out investigations such as soil samples in the event you intend to develop the land. Your professional advisor will be able to advise you further.

Who will hold “title” to the property?

This might be a corporate entity or an individual. Whenever land is held by two or more people concurrently there must be a trust. The legal title to the estate may be held by up to four persons as “joint tenants” on trust for the beneficial owners so that if any one of the legal owners dies, title to the estate passes to the survivor(s). Holding property as “tenants in common” however allows you to hold the legal interest on trust for the separate beneficiaries in equal or unequal shares as the case may be.

Finance

How will you finance the purchase and a potential deposit? Mortgages are difficult to come by in the UK for foreign investors.

Use of the property

Consider whether there are any restrictions on the use of the property.

Relocation to the UK

If you are intending on relocating to the UK, have you consulted with an immigration specialist to ensure all rules are complied with?

Tax considerations

It is advisable to speak to a professional as to the tax implications of your impending purchase or look for tax efficient structures.

Further information

If you have any questions and/or would like advice on any UK Commercial Property, please speak to us at: advice.uk@dixcart.com

uk-immigration-opportunities

The Benefits of an Employee Ownership Trust (EOT)

We are frequently asked by our clients about the often-difficult topic of exit and succession planning.

This gives rise to several practical issues, especially where a trade sale is not likely, or the existing management team are perhaps not in a position to be able to raise sufficient funds to affect a traditional “Management Buy Out”.

One Solution that is often overlooked is an Employee Ownership Trust (EOT)

An EOT can be used to acquire between 51% and 100% of a trading company’s shares which are then held on trust for the benefit of all the company’s employees, on the same terms.

Unlike traditional employee share schemes, which give rise to direct employee ownership, the EOT allows for indirect employee ownership overseen by selected employee Trustees.

EOT’s have been shown to promote better business performance, greater commitment, and productivity from employees with increased staff loyalty, lower staff turnover and absenteeism. They also allow staff members to benefit from being involved in the management and future direction of the business.

Benefits to the Shareholder

  • The sale by the existing business owner of over 51% of his/her shares in the company to a qualifying EOT, would be Capital Gains Tax (CGT) and Inheritance Tax (IHT) free.  This can prove to be a valuable relief given that the Business Asset Disposal relief limit for the reduced 10% rate of CGT is only £1 million;
  • A market is created for the shares that might not otherwise exist;
  • Unlike in a liquidation situation (which is often the only choice for small business owners to realise the value of the business), the company can continue to operate, and the shareholders and employees can still be part of that business;
  • Typically, the sale of shares in a company to an EOT is funded by a mixture of existing cash, from within the company, and external loan instruments;
  • It avoids the need for often complex and expensive negotiations when selling to a third party.

Benefits to the Company and Employees

  • A trading company owned by an EOT is able to pay cash bonuses of up to £3,600 per annum to all employees (on a ‘same terms’ basis);
  • These bonuses will be tax-free but will be subject to National Insurance Contributions (NIC’s);
  • The company gets corporation tax relief on these tax-free bonuses;
  • There are benefits in terms of increased staff motivation and job retention, as set out above.

Summary and Additional Information

An EOT can provide a tax-beneficial way for shareholders to realise value and to involve employees in the company that they work for, although the structuring and funding of an EOT requires careful consideration.

If you would like to find out more about how an EOT may benefit you and your business, please contact us: advice.uk@dixcart.com.

Using an Isle of Man SPV for Financing International Investment

We have now had an extended period in which world markets have been shaken by international events. For example, the value of the British Pound (£GBP) has been depressed (albeit showing signs of recovery due to Bond market performance) owing to a blend of home grown and global economic forces (Brexit, pandemic, war, inflation et al). But in this fiscal adversity lies a potentially lucrative opportunity.

It may be an opportune time for those based in the world’s more buoyant economies to look to international investment, monopolising on weakened currencies, undervalued markets, and any differences in interest rates etc. But for many with the resources to undertake such activity, such as Family Offices, Private Equity Funds or even HNWIs with significant assets, the question of how best to leverage this advantage can be complex and unwieldly, even resulting in decision-making paralysis – worse, this inertia could even lead to missing the boat altogether.

At Dixcart, we work with a wide range of professionals to deliver solutions for such clients. In this article we consider how you and your advisers could utilise an Isle of Man Special Purpose Vehicle (SPV) to unlock your next international investment opportunity:

  1. Why is the Isle of Man a Good Choice for Your Special Purpose Vehicle?
  2. Which Isle of Man Entities are Available to Act as Special Purpose Vehicles?
  3. Leveraging Against Your Existing Portfolio
  4. What Loan Facilities are Available to an Isle of Man Special Purpose Vehicle?
  5. How Could an Offshore SPV be Used for International Investment?
  6. How Can Dixcart Assist with Your Next International Investment?

1. Why is the Isle of Man a Good Choice for Your Special Purpose Vehicle?

Typically, an offshore SPV will be utilised to ringfence assets and liabilities in relation to a given activity or objective, thus mitigating risk. For example, to purchase an equity position in a company, to conduct mergers and acquisitions, provide angel investment to a start-up, securitisation of debt, raising additional capital, purchasing luxury assets etc. Structuring your investment vehicle in this way can have the broad effect of:

  • Protection against insolvency via ringfencing the assets and liabilities of the Beneficial Owner and SPV.
  • There may be no audit requirements where the SPV is below the earnings threshold.
  • Providing commercial privacy, dependent on the local regime e.g. there is no requirement for accounts to be made publicly available in the Isle of Man.
  • Can shield the SPV from legal action taken against the Beneficial Owners and vice versa.
  • Providing legal and tax certainty dependent on the jurisdiction of establishment.
  • And more…

Further to this, several features make the Isle of Man an attractive prospect for incorporating your SPV when undertaking international investment:

Tax Regime

The Isle of Man has a favourable tax regime for corporate entities, which makes it an attractive location for incorporating SPVs geared towards investment. Famously the island benefits from the following headline rates:

  • 0% Corporate Tax
  • 0% Capital Gains Tax
  • 0% tax on most Dividends and Interest payments

Further, the Isle of Man falls under the UK’s VAT regime, which can be beneficial in certain circumstances. Isle of Man Entities can register for VAT purposes, and benefit from service providers’ experience in this regime and a more responsive VAT Office generally.

However, it is important to note that there may be tax payable in the local jurisdiction where the activity is taking place depending on the nature of the proposed activity and the local tax rules. This is a complex area, and it is vital to engage an appropriate tax adviser when conducting such planning. Dixcart have a wide range of professional contacts and can make introductions as desired.

Legal Regime

The Isle of Man has modern and flexible corporate laws that allow for the creation of various types of SPV. The legislative environment is also politically agnostic, and therefore stable and reliable. The flexibility offered, allows SPVs to tailor their structures to meet their specific objectives, whilst the enduring nature of the legal regime provides certainty.

Additionally, whilst UK Case Law is persuasive, Manx Law is distinct and will only follow the Precedents of the Courts of England & Wales, in the absence of Manx authority. Further, foreign Court Orders are not directly enforceable without an equivalent Manx Court Order. As the Courts and laws of the Isle of Man are tailored to its requirements, it is particularly well placed to deal with matters relating to Company Law, Trust Law, and Tax etc.   

In addition, lenders can take comfort as registered legal charges are publicly available on the Isle of Man Companies Registry search. For example, this is a requirement for companies formed under the Companies Act 1931. Therefore, details regarding all existing registered charges are available to the lender online, on-demand.

Global Standing

The Isle of Man is OECD ‘Whitelisted’ and therefore regarded as a well-run financial centre. The island has a global reputation for being a well-regulated jurisdiction with a stable political and economic environment. The Isle of Man Financial Services Authority has a proactive approach to regulating financial services, ensuring good governance, which provides investors and lenders with confidence in the enterprise. This can make activities such as debt financing more attractive to lenders, as the Isle of Man is easy to do business with.

Regulated Professional Services

The Isle of Man has a heritage in international planning and offers a well-developed financial services industry, including highly experienced service providers, such as Dixcart, who can assist with the setup and ongoing management of SPVs. Further, the investor and lender can take comfort from the fact that Isle of Man corporate service providers must possess a license and are regulated, unlike their UK counterparts.

Proximity

The Isle of Man is located in the middle of the Irish Sea, between the UK and Ireland, making it easily accessible from both locations. But more importantly, operates in the same time zone as the UK and is just +1 CET for European activities. This proximity makes it a convenient location for individuals and companies looking to set up SPVs for access to markets in similar time zones, such as the UK or other European jurisdictions.


2. Which Isle of Man Entities Are Available to Act As Special Purpose Vehicles?

The Isle of Man offers a wide variety of vehicles to act as SPVs and undertake investment via debt or equity financing. A corporate entity can be incorporated on the island in 48 hours or less for a minimum Registry fee of £100 – quicker times are available for increased Government fees. It is important to note that the incorporation fee does not include the service provider’s onboarding fee.

Appropriate entities include:

Isle of Man Companies Act 2006 Company

The Isle of Man Companies Act 2006 (CA 2006) Company is a modern corporate vehicle that has a great deal of flexibility when compared to a more traditional Companies Act 1931 Company.

There are no thin capitalisation rules on a CA 2006 Co as the company may be incorporated with a single share, which can have a par value of zero. The CA 2006 Co simply requires a Registered Office, Registered Agent and a minimum of one Shareholder and one Director. The Director can be a non-Isle of Man Resident, and Corporate Directors are permitted. No Company Secretary is required.

All charges are deemed to be registerable under the CA 2006 and charges should be registered within 1 month of creation. The CA 2006 provides additional flexibility in this regard, as charges can be registered after this 1-month period. In reality the registration of such a charge will likely be a term of the Loan Agreement and as an SPV, the company is unlikely to have existing charges or trade debts etc.

Limited Partnership with Separate Legal Personality

As stipulated in the Isle of Man Partnership Act 1909, Limited Partnerships require a minimum of two Partners, made up of one or more General Partners (GP) and one or more Limited Partners (LP). A minimum of one Partner must be Isle of Man Resident.

A GP has unlimited liability and is free to engage in the day-to day management of the Limited Partnership i.e. administer the investment(s). The GP can be a Corporate entity. Due to this uncapped liability, the GP is typically an Isle of Man Limited Company.

The LP would be the investor, whose liability is fixed at outset and restricted to the capital or property contributed or outstanding. Conversely, the LP cannot engage in the day-to-day administration of the Partnership, lest they be deemed a GP and therefore be exposed to unlimited liability.

Further, under the Limited Partnership (Legal Personality) Act 2011, the Limited Partnership can be incorporated with separate legal personality, thereby being capable of contracting and being a party to legal action.

The Limited Partnership is a transparent entity for tax purposes and therefore Gains are realised on the Partner’s personal rates of taxation (e.g. income tax, Inheritance Tax etc.).

Protected Cell Company (PCC)

A Protected Cell Company (PCC) operates as an independent legal entity, equipped with the authority to engage in contracts, assume ownership of assets, and be subject to legal action. The structure of a PCC allows for the creation of an unlimited number of separate Cells. Each of these Cells serves as a compartmentalised unit with its own assets and liabilities, which are distinctly isolated from those of the other Cells and the PCC’s non-cellular assets and liabilities.

Alongside the non-cellular ordinary shares of the PCC, cellular shares can also be issued. The holder of these cellular shares is permitted to participate in the activities of the specific Cell they invest in, with rights outlined by the Articles of Association.

Accounting transparency is ensured by requiring a separate set of accounts and a tax return for each Cell. Moreover, each Cell must be clearly identifiable as part of a PCC, and all third parties transacting with a Cell must be aware of its status within a PCC structure.

The PCC model presents a valuable strategy for a Beneficial Owner aiming to delineate different activities and associated risks. For instance, one might isolate borrowing and financed activities conducted in one Cell from the private investment carried out in another. When a corporate investor such as a venture capital fund engages in multi-jurisdictional activities, like investing in startups, the Cells act as tangible barriers, segregating each business’s activities. They could also be tailored to reach maturity at varying dates, providing added flexibility.

Honourable Mentions

There are of course many more legal structures available to act as SPV, including; Limited Liability Companies, Foundations and Isle of Man Purpose Trusts. Each has distinct features that can make it appropriate in the correct context.

Economic Substance Considerations

It is important to note that there are rules around Economic Substance in the Isle of Man and Channel Islands. Incorporated entities in these jurisdictions, that undertake Relevant Sector Activity, will have to meet certain requirements to demonstrate the Core Income Generating Activity (CIGA) of the company occurs within the jurisdiction (Isle of Man or Channel Islands), to be Tax Resident. CIGA includes activity such as the entity being directed and managed in the jurisdiction, possessing an adequate and proportionate number of qualified employees (or working hours taking place) in the jurisdiction, possessing an adequate physical presence etc.

For example, if a corporate entity’s sole function is to acquire and hold equities, and the equities in question are controlling stakes in other companies, it is defined as a Pure Equity Holding Company for the purposes of Economic Substance. If the Pure Equity Holding Company derives income from this activity, it will have to demonstrate CIGA. This is accomplished via the provision of Directors, various management services and Registered Office on the Isle of Man or Channel Islands.

You can find the Isle of Man and Channel Islands guidance note on Economic Substance here.


3. Leveraging Against Your Existing Portfolio

As noted in the introduction, markets are tough at the moment and for those with money tied up in their portfolio, liquidating may not be in their best interests e.g. it may compound any losses. Considering debt financing your next international investment can be a good solution under the correct circumstances, but how do you unlock the value in your existing portfolio without compromising growth?

In today’s world it is commonplace for investors to arrange asset-based financing against less conventional security. For example, loan arrangements such as Lombard lending provide a credit facility secured against the investor’s more liquid personal investments, such as equities, bonds, or funds. The methods of how such facilities operate are discussed briefly in section 4.

Further, having initially started in the USA, specialist lenders have started to emerge across the world who can consider more complex arrangements that take into account Illiquid, sticky, or intangible assets. Such assets often present a challenge to use as collateral for financing as they do not have a readily available market value like liquid assets. As such, lending against these non-traditional asset classes is now made possible via insurances contracts that provide a market value guarantee in the event of default.

Illiquid assets are somewhat more straightforward than sticky and intangible assets. Such arrangements may simply require the creation of a charge over the purchased asset being financed e.g. where an aircraft is being constructed, a charge may be created over the aircraft, thus allowing the lender to take lawful possession in the event of default. It is quite normal for the lender in such instances to also take security over other assets in the borrower’s portfolio, such as the Lombard-style arrangement noted earlier, providing the lender with additional certainty to protect against loss.

It is important to work with a specialist lender or professional adviser when attempting to use such assets as collateral to ensure that you are getting a fair and accurate valuation.


4. What Loan Facilities are Available to my Isle of Man Special Purpose Vehicle?

While the Special Purpose Vehicle (SPV) can raise funds through diverse methods like issuing debentures or debt notes, it has a plethora of other financial strategies at its disposal, including acquiring debt financing through banking institutions or other financial intermediaries. Even though numerous banks operate on the Isle of Man – such as Barclays, RBSI, HSBC, NatWest, and others – the Isle of Man entity is not confined to these financial institutions, and deals can be orchestrated with virtually any global lender, given they meet the necessary compliance standards. A multitude of loan facilities are available in these scenarios, but Carried Interest Facilities, Capital Call Facilities, Margin Loan Facilities, and notably, Net Asset Value (NAV) Facilities are some of the most prevalent.

NAV Facilities, in particular, have witnessed escalating popularity, especially amid the prevailing bearish market conditions, where Beneficial Owners might prefer to avoid liquidating their investments at a probable loss. But what are NAV Facilities?


Net Asset Value (NAV) Facilities

NAV Facilities are a form of secured loan, where the collateral consists of assets from an investment vehicle, like a Private Equity Fund, Hedge Fund, or an investment portfolio. They provide investors the means to borrow against their assets’ value without divesting their holdings. The extent of the loan facility is determined by the ‘Net Asset Value’, which is calculated as the total worth of the packaged assets, after deducting liabilities and debts.

Under these provisions, lenders typically extend a line of credit based on a certain proportion of the Net Asset Value. The loan amount hinges on the lender’s evaluation of the quality and liquidity of the underlying assets, as well as the cash flows and distributions that ascend to investors from those assets.

In most instances, the lender will obtain security over the relevant assets, such as shares in the Master Fund/Feeder Fund or the investment holding vehicle. However, the terms of NAV Facilities can greatly vary, depending on the lender, connected parties, any holding vehicle involved, and the nature of the underlying assets. Additionally, the interest rates could be fixed or variable, and the lender might reserve the right to seize the assets or compel a sale in case of an SPV loan default.

NAV Facilities afford investors easy access to liquidity without compelling them to offload their investments. This, in turn, enables them to leverage new investment prospects promptly, without impacting the compounded growth of their leveraged assets. The loan facility can also cover any ongoing or unforeseen expenses, like redemptions or legal fees, endowing the investment vehicle with an element of stability and resilience.


5. How Could an Offshore SPV be Used for International Investment?

Once the capital has been secured via private funding, loan arrangement etc. there are many ways in which an Isle of Man SPV may be utilised to achieve your financial objectives. Typically these include activities such as packaging assets as securitisation, engaging in structured finance, as an investment vehicle, purchasing a luxury asset etc.

Some of the most common uses we see are:

Investment Vehicle

Whilst an Isle of Man SPV can be used to structure open or closed ended investment vehicles for entities such as hedge funds, private equity funds, or venture capital funds undertaking international investment, simple investment companies are often used for private arrangements. The archetypal investment company will use the Isle of Man SPV to co-ordinate the investment capital from investors in multiple jurisdictions or who are looking to undertake investment activity in a foreign market. For example, the funds may come from Hong Kong, Singapore and any number of equivalent jurisdictions, into the Isle of Man SPV that then purchases the equity in a UK SPV undertaking the build and subsequent leasing or sale of UK Real estate, start-ups or growing businesses, with a view to receiving and accumulating Dividends paid to shareholders for reinvestment.

Purchasing a Luxury Asset

In almost every instance, where a client is seeking to acquire a prestigious asset, such as a yacht or jet, an SPV is the best method of purchase. The exact structuring will be guided by the tax and legal advice but will normally carry many benefits for the Beneficial Owner e.g. limiting liability / exposure, tax planning, potential VAT exemptions or recoverability etc. IOM SPVs are very attractive for those non-EU Tax Resident individuals utilising the craft for personal use, or in some circumstances a blend of personal use and commercial charter.Your Attractive HeadingYour Attractive Heading

You can read more about the various uses and features of Isle of Man Companies here.


6. How Can We Assist with Your Next International Investment?

Dixcart can assist with your international structuring, setting up and administering the offshore structures required by your planning. We work closely with clients and their advisers to ensure that the SPV is managed optimally, to facilitate your objectives.

The Dixcart Group has been delivering high quality offshore services to clients and their advisers for over 50 years, with the Isle of Man office trading since 1989. Over this time, we have developed strong working relationships with some of the world’s leading advisers – therefore, If you have not yet engaged a professional adviser, we can make an introduction as appropriate.

*Please note this information should not be considered financial advice, and we would recommend getting in touch with us via the details provided or discussing with your professional adviser before taking any action.


Get in Touch

If you require further information regarding the use of Offshore SPVs, or Isle of Man structures, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Wealth Planning for Ultra High Net Worth Individuals Using Family Investment Corporate Structures

The popularity of Family Investment Companies (FICs) has increased over recent years, and they are viewed as a corporate alternative to the more common discretionary trust.

What is a Family Investment Company?

FICs are companies limited by shares (an “Ltd” or “Limited”) and often established by parents and/or grandparents (“Founders”), to benefit themselves and their family, as shareholders. An FIC owns assets such as property, which generate income and capital gains, which can be distributed to the family shareholders over time.

Assets generally come from the Founders themselves, either through a loan or a direct transfer into the FIC. Each shareholder owns a different class of shares (often referred to as “alphabet shares”), gifted to them by the Founders.

Generally, the Founders’ shares will have the usual rights to vote and receive dividends but not capital, whereas the gifted shares will only have the rights to receive dividends and capital, but not to vote.

This ensures that the Founders have the sole right to make decisions, regarding the FIC, at both shareholder and board level, including decisions relating to dividend payments.

Benefits of a Family Investment Company

A number of benefits are available through the use of an FIC. It is, however, important to speak with a tax specialist, such as Dixcart, who can help advise on the tax merits of an FIC, taking into account each potential Founder’s circumstances and objectives.

The benefits offered through the use of an FIC, include:

  1. FICs can be used to move assets from individuals’ personal estates into a corporate vehicle, which can then be used, to control those assets by those individuals (Founders), being the only shareholders with the power to vote and to decide the composition of the board. This allows them to provide a controlled source of income for both themselves and their family over a period of time.
  2. Limited companies offer the advantage of flexibility. This is ideal in situations where family structures, objectives and other considerations, are changing regularly. Examples of such flexibility, include: shares being transferred, new shares being issued with different rights, and changes to the composition of the board of directors.  All of which can be decided by the Founders.
  3. There are a number potential tax advantages when using FICs, including Inheritance Tax, but these will vary depending on; the size of the investments/loans, the assets held by the FIC and the personal circumstances of the Founders.
  4. If the Founders loan funds to the FIC, the loan can be repaid over time from the FIC’s post tax profits, in addition to any profit paid out by way of dividends. This can provide the Founders with an ongoing source of income.
  5. Alternatively, if the capital value of the loan is no longer needed, the Founders could gift the value of the loan to other family members. This would move the value of that loan out of their taxable estate, for Inheritance Tax purposes, subject to them surviving the date of the ‘gift’ by seven years.

Opportunities Provided Through the Use of a Non-UK Resident FIC by International Families

International families making direct investments into UK companies, as individuals, are liable to UK Inheritance Tax on those UK situs assets. It is also advisable to have a UK will to deal with those assets on their death.

Making those investments through a non-UK resident FIC can remove the liability to UK inheritance tax as well as the need to have a UK will.

An Example Using a Guernsey Company

The example below details the potential benefits provided through the use of a Guernsey company.

The company will pay tax at a rate of 0% on any profit that it generates, due to the fact that this is the corporate tax rate in Guernsey (with limited exceptions and subject to any specific provisions in the counties where investments are held).

Provided that the company is correctly managed and controlled from Guernsey and the register of members is kept, as required, ‘offshore’ it is possible to retain ‘excluded property’ status for IHT (apart from in relation to UK residential property and certain other assets).

The shares in the company are not a UK situs asset. If the company is a private Guernsey company, it does not need to file accounts. There is a beneficial ownership register for companies in Guernsey, this is private and not searchable by the public.

Additional Information

To find out how an FIC might be of benefit to you, and for assistance in establishing an IFC appropriate to meet your needs, please contact the Dixcart office in the UK: advice.uk@dixcart.com

The Dixcart office in the UK can also provide advice as to whether a non-UK resident FIC might be applicable in your particular family circumstances.

Nevis: Trusted Asset Protection from a Firm Foundation

Introduction

When it comes to protecting assets and securing wealth, individuals and businesses often seek legal structures that offer robust asset protection. Nevis, known for its strong offshore financial services, provides two popular options for asset protection: Nevis trusts and Nevis Multiform Foundations.

These entities offer a range of benefits, including confidentiality, legal protection, and flexibility, making them an attractive choice for individuals and businesses looking to safeguard their assets. In this article, we will explore the key advantages of Nevis Trusts and Nevis Multiform Foundations.

Asset Protection

One of the primary reasons individuals opt for Nevis Trusts and Nevis Multiform Foundations is the significant level of asset protection they provide. These entities are designed to shield assets from potential threats such as lawsuits and creditors.

By transferring assets into these structures, individuals can safeguard their wealth, ensuring it remains out of reach from potential claimants and should anyone wish to attack the structure they must first place a bond of $100,000 for a Trust and $50,000 for a Foundation with the Nevis government before any action is considered.

Confidentiality and Privacy

Nevis is renowned for its commitment to privacy and confidentiality. The island’s legal framework ensures that personal and financial information pertaining to Nevis Trusts and Nevis Multiform Foundations remains strictly confidential. The trust laws in Nevis do not require the registration or public disclosure of trust deeds, beneficiaries, or settlors. This level of privacy helps protect the identities of those involved.

Flexibility and Control

Nevis Trusts and Nevis Multiform Foundations offer considerable flexibility and some control over assets. These structures allow individuals to shape the terms of the trust or foundation, including the distribution of assets and the appointment of trustees or foundation council members.

This flexibility ensures that the creator of the trust or foundation can maintain some elements of control while simultaneously protecting assets.

Nevis law permits the appointment of protectors, who can oversee the trustees or a supervisory board to oversee the Foundation council members, ensuring the assets are managed according to the creator’s wishes.

Estate Planning

Nevis Trusts and Nevis Multiform Foundations are valuable tools for estate planning. By transferring assets into these structures, individuals can dictate how their wealth is managed and distributed after their passing. This allows for a seamless transfer of assets to beneficiaries while minimising estate taxes and avoiding probate. Additionally, the assets held within these structures are protected from any claims arising from the deceased’s personal liabilities.

International Recognition

Nevis is a reputable offshore jurisdiction that offers international recognition and legal protection. Nevis Trusts and Nevis Multiform Foundations are established under the Nevis International Exempt Trust Ordinance and the Nevis Multiform Foundations Ordinance, respectively. These statutes provide a robust legal framework, ensuring the validity and enforceability of these structures globally. Many countries recognise and respect the legal protections offered by Nevis Trusts and Nevis Multiform Foundations, further enhancing their credibility.

Conclusion

When it comes to asset protection, Nevis Trusts and Nevis Multiform Foundations offer a compelling solution for individuals and businesses seeking to safeguard their wealth. With benefits such as asset protection, confidentiality, flexibility, and international recognition, these structures provide a secure environment for managing and preserving assets. However, it is essential to consult with experienced professionals and understand the legal and tax implications before establishing such structures to ensure compliance with relevant regulations and laws.

Additional Information

Please contact Dixcart if you require any additional information on this topic: advice@dixcart.com.

Whilst this note is intended to provide information regarding Nevis asset protection structures, it is not intended to form any sort of legal or tax advice. We strongly recommend that any individual considering setting up a wealth planning structure seek independent legal and tax advice before doing so.