What is a trust?
Discussion
Silly question but i've been talking to a director of a UK company who has paid out LOTs of money on tax advise. He is basically setting up a trust in the channel islands that will control a company in the channel islands that will import and export health supplements etc.
He on the other hand will be running and sunning himself somewhere in southern europe.
All sounds a bit fishy to me. Surely he can't be a director or controller of a company via a trust to effectively make HIS company a non EU citizen while he lives in the EU?
So my question is, what is a trust and if they operate as described above then theoretically everyone could relocate their business outside the EU to take advantage of the low corporation tax regime.
He on the other hand will be running and sunning himself somewhere in southern europe.
All sounds a bit fishy to me. Surely he can't be a director or controller of a company via a trust to effectively make HIS company a non EU citizen while he lives in the EU?
So my question is, what is a trust and if they operate as described above then theoretically everyone could relocate their business outside the EU to take advantage of the low corporation tax regime.
The concept of a trust is very old. Essentially, it is a legal device whereby the control of monies is taken away from the people who may eventually benefit from that money - usually for a fixed period.
An example of a simple trust is a situation where money is set aside for the use of an individual until they reach a certain age. This is often specified in a will where an inheritance is going to a "minor" (an individual under the age of 18) and the person writing the will wants to ensure that the money will be kept secure until the beneficiary (i.e the minor) is mature enough to use it correctly. The money is therefore paid into a trust fund where it is looked after by the trustees whilst they wait for the beneficiary to reach the required age.
Charities are often set up as trusts as well. Again, the beneficiaries of the charity receive the money (or services) as controlled by the charity trustees.
UK based trusts usually have to pay tax on any income they generate.
These offshore trsuts are more complicated. By being based offshore, they are usually immune from UK taxes - although they may have to pay whatever taxes are due in the country/territory they are based in.
The individuals who will benefit from these trusts will not be taxed on the trust income as long as they personally don't receive that income.
The trick is working out a scheme which allows the individual access to the funds in the trust without exposing themselves to UK tax.
This is the point where my knowledge of offshore trust funds runs out.
An example of a simple trust is a situation where money is set aside for the use of an individual until they reach a certain age. This is often specified in a will where an inheritance is going to a "minor" (an individual under the age of 18) and the person writing the will wants to ensure that the money will be kept secure until the beneficiary (i.e the minor) is mature enough to use it correctly. The money is therefore paid into a trust fund where it is looked after by the trustees whilst they wait for the beneficiary to reach the required age.
Charities are often set up as trusts as well. Again, the beneficiaries of the charity receive the money (or services) as controlled by the charity trustees.
UK based trusts usually have to pay tax on any income they generate.
These offshore trsuts are more complicated. By being based offshore, they are usually immune from UK taxes - although they may have to pay whatever taxes are due in the country/territory they are based in.
The individuals who will benefit from these trusts will not be taxed on the trust income as long as they personally don't receive that income.
The trick is working out a scheme which allows the individual access to the funds in the trust without exposing themselves to UK tax.
This is the point where my knowledge of offshore trust funds runs out.
No idea. I presume they're going to live off house sale proceeds.
I can understand how wills etc would be placed in a trust, but this seems a bit like the trust getting paid for work at tescos and the beneficiary doing the actually stacking the shelves.
I can understand how wills etc would be placed in a trust, but this seems a bit like the trust getting paid for work at tescos and the beneficiary doing the actually stacking the shelves.
Edited by ACEparts_com on Wednesday 18th July 00:08
Eric Mc said:
It is rather contrived.
As long as the individual is not paid out of the trust, they should not suffer any tax. However,at some point they will want to access the funds - and at that point the Revenue will want to pounce.
I assume by that point the individual will have expatriated themselves.As long as the individual is not paid out of the trust, they should not suffer any tax. However,at some point they will want to access the funds - and at that point the Revenue will want to pounce.
My pal has a trust, its quite bizzare what happens.......if he wants to buy a car, he puts a proposal to the trustees of the trust, who rubber stamp it, and he get the car or whatever, but i know he pays no uk tax, despite living here......its basically a tax avoidance scheme
Edited by POORCARDEALER on Wednesday 18th July 08:33
I know very little about how these convoluted schemes work - and I am sure the Revenue are well aware of their existence.
From what some people have said here on PH, the essence of the way these schemes work is their ability to forward money "tax free" to the "beneficiaries" in the form of a "loan". Loan income is not taxable in the hands of the recipient - the assumption being that it is not real "income" as such - and the loan will eventually be repaid.
If the entity which advanced the money as a loan decides to waive the repayment, the loan crystalises into proper income and will be taxable.
I think it is the latter which is being abused - and at some point the Revenue will find a way of making these avoidance schemes unworkable.
From what some people have said here on PH, the essence of the way these schemes work is their ability to forward money "tax free" to the "beneficiaries" in the form of a "loan". Loan income is not taxable in the hands of the recipient - the assumption being that it is not real "income" as such - and the loan will eventually be repaid.
If the entity which advanced the money as a loan decides to waive the repayment, the loan crystalises into proper income and will be taxable.
I think it is the latter which is being abused - and at some point the Revenue will find a way of making these avoidance schemes unworkable.
Edited by Eric Mc on Wednesday 18th July 08:43
I was talking to someone in work about this as he had been talking to someone utilising such a system.
As Eric has pointed out, the loan must be repaid otherwise it is not a loan. My friend's understanding of this, from what he could garner from the chap using it, was that the term of the loan was a long one (ie, no repayments for a certain period after the loan was made) and then the trust was in someway wound up without ever taking the repayment.
Seems shakey to me, but this is very second hand info.
As Eric has pointed out, the loan must be repaid otherwise it is not a loan. My friend's understanding of this, from what he could garner from the chap using it, was that the term of the loan was a long one (ie, no repayments for a certain period after the loan was made) and then the trust was in someway wound up without ever taking the repayment.
Seems shakey to me, but this is very second hand info.
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