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Palladium Newsletter - Summer 2017
Dear All,

Welcome to our Summer newsletter which we trust you will find interesting and informative. We always look forward to hearing from any of you with feedback, comments, and suggestions.

 

A.    Palladium Evening Seminar and Palladium Advisors’ Change in Focus
Palladium Advisors recently hosted an evening seminar at Hush in Mayfair. The event was attended by a variety of professionals from the private wealth and financial services industry. The evening provided a fantastic opportunity to network with others in the industry and went far later than scheduled – everyone had a fantastic time! Please let us know if you would like to join our next event in the autumn.

The keynote speech was delivered by the founder and director of Palladium, Stephen Abletshauser, followed by presentations from the rest of the Palladium team. These focused on the CRS and how best to manage its effect, alternative structures (e.g. hedge funds, Sharia law compliant structures), the enduring attraction of trusts (see below for more details) as well as an update on the breadth of services Palladium Advisors provides. Above all, we reiterated the ‘message’ that we do a lot more than just trusts in the UK, BVI and New Zealand! 

B.    Are Trusts in Trouble?
Given the negative attention trusts have received in recent years, we thought it would be useful to focus part of the presentation on trusts - and why our clients still want them.

1.    Why do clients want trusts?
 
Trusts have been used for centuries for estate planning, tax planning and asset protection purposes. They offer much more flexibility than a will and can also ensure that family wealth is protected,  preserved   and  passed down to  the 
next generation for sensible and pragmatic purposes.

We have also seen an increase in the use of trusts in the family office industry, where they are used to keep together collections of luxury assets (like artwork, classic cars and wine) and consolidate daily administration tasks such as regular payments of security and insurance.

2.    If they are so useful, why are clients being deterred?

Recently, however, some clients have been put off using trusts for a number of reasons, the main ones being:

•    They are not as tax efficient as they once were.  The latest ATED measures, which bring offshore companies holding UK company into the scope of IHT, have removed the last remaining tax benefit of the traditional property holding structure.

•    The introduction of the CRS and various trust registers has seen privacy been eroded – which used to be one of the reasons why high profile clients would use a trust.

•    There are moral implications of being associated with an offshore or “tax avoidance” structure – paying as little tax as possible is no longer socially acceptable and many clients want to maintain a good image.


3.    It’s not all doom and gloom!

Whilst these are certainly things to consider, it is also important to remember:

•    With regard to tax, there are numerous reliefs, nil-rate bands and exemptions available and the tax consequences may not be as adverse you think.
 
•    In the UK, for example, tax advantages are retained for those with UK Res Non Dom status and they can benefit from setting up excluded property trusts.


•    The CRS is applicable in over 100 countries and is also not exclusive to trusts – the same information is collected and exchanged when you open a bank account or set up an investment portfolio, so some level of reporting requirement is difficult to avoid in any (decent!) jurisdiction.  Given more information is being collected than ever before, we need to ensure that only the best international finance centres are used which have secure IT infrastructures – Palladium use Isle of Man, Luxembourg, Jersey and BVI amongst others.

•    There are “onshore offshore jurisdictions” which still have good reputations – Luxembourg, Isle of Man and New Zealand have tax friendly jurisdictions for non-resident wealth but without the negative conations of places like Panama.


4.    What are the alternatives to trusts if we still wish to avoid them?

If a client is not familiar or comfortable with using a trust, we have set up alternative structures which can achieve the same result:

•    Family Investment Companies

A corporate structure with different classes of shares e.g. BVI, IoM, Luxembourg, Singapore. These are sometimes labelled ‘Family Investment Companies’. 

By issuing shares that have voting rights but no entitlement to dividends (and vice versa) management and financial benefit can be divided, just like in a trust.  It is also possible to prevent the shares being transferred outside of the family by including pre-emption rights in the mem & arts.

•    New Zealand family limited partnerships

These consist of one general partner (the head of the family) and limited partners (the next generation), where the general partner is responsible for the management of the FLP but only the limited partners have a financial interest.  

What a limited partner can receive is determined by the partnership agreement, which can make interests fixed, discretionary or contingent and can also prevent the interest being passed outside of the family.  

The identity of NZ family limited partnerships is also not a matter of public record, so clients can maintain some privacy. 

Trusts are still very popular vehicles for estate planning and asset protection – for a number of  our clients, these are the main objectives of setting up a trust.

There are also some tax planning opportunities to be had and Palladium is happy to have an informal chat in the first instance.

As well as a corporate structure and a New Zealand family limited partnership, other alternatives include private trust companies e.g. BVI, HK and foundations e.g. Liechtenstein, Panama.

Please contact Melloney melloney@palladiumadvisors.net for further information.  

C.    Attractive Private Fund LP Reform in the UK
The Legislative Reform Order in relation to Private Fund Limited Partnerships came into force on 6 April 2017, and paves way for the much-awaited amendments to the Limited Partnerships Act 1907 that may modernise the way Limited Partnerships Act 1907 applies to private funds. The legislative change makes UK LPs a much more attractive structure for investors and asset managers as it offers more flexibility from existing UK LPs statutes. The Private Fund Limited Partnerships reform applies both  to  English  and  Scottish  partnerships  and
helps bring it more in line with modern LP laws e.g. New Zealand or Cayman which have been so successful in the recent past.

Key Changes to 1907 Act include:

1.    To benefit from the regime the Private Fund LP should be a collective investment scheme.
2.    UK LPs may opt for a Private Fund LP status at any time, but cannot be reversed.
3.    Prescribed list of permissible actions not deemed to be “participation in management” of the LP.
4.    Capital contributions:
      
•     “capital” contribution is not a requirement;
      
•     registration of capital contributions is not a requirement;
      
•     capital contributions may be withdrawn at any time during the life of the Private Fund LP;
      
•     option for existing partnerships to be recognised as Private Fund LPs;
      
•     nature and term of the Private Fund LP does not require registration.
5.   Winding-up:
      
•     winding-up a Private Fund LP does not require a court order now;
      
•     option to appoint a third party to wind-up Private Fund LP on its behalf;
      
•     Certain obligations in the 1890 Act no longer applicable.
6.   Gazette Notices: 
      
•     transfers of interests by limited partners do not required publication;
     
•     ceasing to be the GP has to be published, but effective date of the change does not have to be the publication date;
     
•     Section 36(1) 1890 Act will no longer be applicable.

Please contact us if these changes are relevant for you.

D.    Trust Reforms in NZ
New trust reform measures came into effect on 21 February 2017 (NZ Taxation (Business Tax, Exchange of Information, and Remedial Matters) Bill) and introduce new disclosure requirements on foreign trusts, which will require trusts including new registration fees and annual fees thereon.

New Zealand has been a victim of its own success – huge amounts of trusts were settled or resettled in New Zealand due to the attraction of its stable Government, clean and reliable judicial system, long history of trusts as well as a regime for foreign trusts exempting non-NZ assets from NZ taxation on a remittance style basis.

The OCED pressured NZ to analyse reforming its laws to increase transparency of the structures.  Thankfully, the reforms do not require a generally accessible register. Trustees in NZ of foreign trusts are, however, now required to provide the NZ authority with:

•    the name of the trust;
•    details of each trust settlement;
•    full details of every settlor or controller of the trust;
•    full details of all adult beneficiaries, and parents or guardians of minor beneficiaries, of fixed trusts;
•    details of each beneficiary or class of beneficiary of a discretionary trust;
•    a copy of the trust deed and all amendments or additions to it.

The law requires affected trust registrations to be completed with the Inland Revenue by 30 June 2017, and thereafter notifying changes within 30 days of becoming aware of them. The bill also states that information held on the register shall be accessible to the New Zealand Police and the Department of Internal Affairs including their respective officers, employees or agents. 

Whilst the newly introduced registration and annual filing fees in NZ remains low, all users of NZ trusts must note that failure to register will lead to foreign trusts losing their current exemptions from NZ tax.

B.    Emigration Services
Through our network of legal firm associates and partners, we can now assist your clients move to all of these jurisdictions which run highly attractive émigré tax and re-settlement programmes:
                 •    UK
                 •    Switzerland
                 •    New Zealand
                 •    Malta
                 •    Cyprus
                 •    Singapore 
                 •    Barbados 
                 •    Jersey

Please contact me for more details if interested.


Until the next edition,

Stephen

Articles:

Tax Breaks for UK Holding Companies – we think it is worth remembering that the UK has a similar regime to Luxembourg and other European countries (the parent-subsidiary directive and participation exemption regime) in respect of exempting dividends from CIT when they are received by a holding company.  Please see the below for further information:
http://www.mondaq.com/ac/content.asp?content_id=3042&email_a%20%3E%20ccess=on

BEPS - loopholes being closed for good?:
http://www.oecd.org/tax/ground-breaking-multilateral-beps-convention-will-close-tax-treaty-loopholes.htm

Offshore banks and asset managers set to suffer:
http://www.fundstrategy.co.uk/wealth-managers-face-1-1trn-outflows-back-tax-crackdown/

End corporation tax?:
http://www.bbc.co.uk/news/business-39869118

US multinationals in Ireland – is Apple really a ‘fraud’:
https://www.bloomberg.com/news/articles/2016-07-28/stiglitz-calls-apple-s-profit-reporting-in-ireland-a-fraud 

Attack on Brazil UHNWIs planned:
http://tax-news.com/news/Brazils_Senate_Considers_Tax_On_High_Net_Worth_Individuals____74217.html

Is 2016 the year for clients to buy fine wine?: 
https://www.thedrinksbusiness.com/2017/04/bordeaux-2016-right-banks-dazzles-in-galloni-report/ 

Time for Emerging Markets’ comeback – what does this mean for you?:
https://www.bloomberg.com/news/articles/2017-01-31/ubs-s-rich-clients-worth-2-1-trillion-warm-to-emerging-markets 

 

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