Most people think that ‘Offshore Companies’ are illegal or only for the super rich.
This is not the case, however you do need to have a reasonable amount of capital (GBP 1 million upwards) to gain real benefit.
If used properly offshore companies can help with your overall tax and investment planning, particularly with UK Inheritance Tax.
The main advantages of an offshore company are as follows:
1. Assets held appreciate with tax-free growth and income.
2. Ownership may be passed by simply giving shares (to family etc.). Providing 51% of the shares are retained then control of the entire holding is maintained.
3. All forms of assets including property could form part of the holding.
4. By giving 49% of the shares of the company to dependents (or as required) Inheritance Tax is effectively halved (UK clients).
5. The entire assets may be placed in a Trust to control the disposal of the assets.
6. Income (as a Director) may be taken in any location worldwide and only that income, as opposed to profit on the entire assets, may be assessed for Income Tax purposes if applicable based on country of residence at that time.
7. Income taken and/or used in the name of the company for any purpose is tax-free.
8. Bearer Shares and/or Nominee Directors may be used giving complete anonymity.
9. Whilst it is envisaged that the offshore company will primarily be used as a holding company it could also be used for trade such as consultancy work etc.,
10. By having assets held within an offshore company your assets are protected against personal actions and insolvency.
In conjunction with the offshore company you will need a corporate bank account together with a suitable investment-trading platform to hold investments such as mutual funds, shares or other assets required.
Both the corporate bank account and investment-trading platform would be arranged in the name of the offshore company with the director(s) of the company, namely the client(s), signatories to each component.
The key benefit of having an investment trading platform in the name of the offshore company is that once setup the trading of assets is quicker and with far less paperwork involved.
Use of an Offshore Company for UK Inheritance Tax – Case Study
Husband and wife as directors and principal owners of the company control all aspects including any future income or capital requirements they may need. They make an initial investment of GBP 3 million into their offshore company.
They have two children and decide to give each child 24% of the shareholding of the company. Husband and wife retain 52% majority shareholding.
Both husband and wife have other assets separate to their offshore company which they use against their individual IHT nil rate band allowance of GBP 325,000 each.
From an IHT perspective the children’s share of the initial value of the investment placed in the offshore company (via an investment trading platform or other investment vehicle) and its future capital appreciation is classed as a Potentially Exempt Transfer (PET) and therefore subject to a reducing charge on gifts from 40% to zero after seven years.
The original capital investment was £3 million and the children’s shareholding of 48% represents £1,440,000. After seven years the £1,440,000 is outside of the parents estate resulting in an IHT saving of £576,000 at 40%.