Structure of excluded property trust for non-dom preparing to reside in UK?

[mmp97]

My wife, non-dom, non-resident, plans to reside in the UK from 2008 (along with myself, now also non-resident, but dom) and our two kids (equally now non-resident, but dom). I understand that prior to arriving in the UK it may be advisable for my wife to set up a trust (excluded property trust) so that if in future, she were to become UK domiciled, the trust assets would be protected from UK income tax, CGT and IHT from set-up date. All the trustÂ’s assets incidentally would be foreign, viz. property and shares. If for instance the law on domicile were to be reformed, her domicile status could change sooner rather than later!

The trust set-up is of course not cost-free, and I understand that there are risks, because a trust cannot be easily unwound and because the Revenue in its present mood seems to be injecting uncertainty wherever it considers schemes fancy.

I would like to ask for the forumÂ’s opinion:

A) Where should the trust be set up? Some jurisdictions are cheaper than others, e.g. Seychelles. Annual costs mount up.

B) What kind of trust should it be (discretionary, etc)? This question seems to merge with the next one - what should the objects of the trust be? If only to benefit our grandchildren, for example, we shall put almost nothing in. If to benefit our children, more will go in. If we can get pretty much total discretion, weÂ’ll put a lot in. What weÂ’re aiming at (of course) is maximum freedom and control consistent with the initial aim, that the assets should be judged non-domiciled, in the event that my wife should ultimately become domiciled.

C) Who should the Trustees be? We, i.e., self (dom) and wife (non-dom) would like to control it. But since we are planning to temporarily reside in the UK, we donÂ’t want to run into any management & control or taxation of trustees issues.

Please - I really do understand that I cannot set this up myself! But I want to think it all through before getting advice.

[johnfkavanagh]

As you may have inferred from the lack of replies to your query, the answers to the questions you are asking are very much in the realm of paid-for professional advice.

Personally, I would not attempt to answer questions of this kind without some detailed fact-finding about circumstances and objectives or without formal instructions!

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[mmp97]

Dear John,

Thanks for your reply! I did indeed infer that...but my problem with starting in the paid mode, is that personally I go into the Holy Sanctum of the advisor and tend to stumble out one and a half hours' later and L500 poorer, with nothing but a vague jumble in my mind. These things are too complex to absorb in a couple of hours' one on one.

If indeed the conversation stays focused. I remember paying my father's lawyer L500 and getting an hour's lecture on weaning oneself off alcoholism (a subject of no interest to me) when what he was paid to talk about, was nil-rate band trusts.

I'm sure neither Daniel nor you lecture your clients about alcoholism...But personally, I like to read up on a subject, and then pay above all for the execution...then one gains, hopefully, a general understanding, as result of one's own researches.

Who knows? But if I’m to live with the results of my tax-planning, I have to really understand the structure! That means some coming-to-grips – more than can surely sensibly be fitted into one-on-one advisory sessions.

But thanks all the same, and much appreciated. I always admire your contributions...

[TaxationWeb@BritishA]

mmp97,

Most trust and accountants will offer a complex case like yours a free initial consultation of one hour. You won't be out any money, and can see for yourself if you'll be getting any value out of the relationship.

You might find the first session will give you some areas to look into. If you request it at that initial meeting, they may be able to provide you with background reading material on the subject. You can split your consultation into two or three sessions, with the provision of written material covering the topics discussed after each session, which will give you time to review the material.

If you want to learn a bit before you start working with an adviser, do a web search on trusts and read what you find. Much of what you find will be sponsored by various accountancy and trust firms, which may help you choose your adviser. A visit to Inland Revenue site may also prove fruitful in providing some initial background documentation.

However, in the end, the specifics of your case will undoubtedly require a bespoke personal plan of action that will more than likely be completely different to everything you read up on in advance.

[mmp97]

Alas, the initial consultation will have (as a matter of practicality) to wait, as I am writing from overseas. But I do, really, appreciate your description of the client-consultant relationship. And the excellent ideas on deepening my knowledge.

I am slightly puzzled when you talk about 'the specifics of your case'. I am surely in a very common situation...one spouse is dom, the other spouse is non-dom. As a couple we want to use this to our best advantage. If we live in the UK a long time, it is just possible we might both end up as doms. Hence the trust, set up before the non-dom partner sets foot in the UK. This, surely, is a very, very common situation.

There are hundreds of Brits married to non-doms in exactly this situation!

I do defer to your idea that the most standard case often turns out, on closer inspection, to require a bespoke solution. But personally, I intend to try to understand a little more about the non-bespoke solution first. Then when presented, perhaps inevitably, with a bespoke solution, I shall understand the context - maybe.

[johnfkavanagh]

mmp97

I agree with the previous contributor that you ought to be able to obtain a reasonable understanding of the general concepts from an initial consultation with a suitable adviser. I always offer free initial consultations because the service I offer is based on confidence and a prospective client should have the opportunity to discover before he or she instructs me whether I am the person they are prepared to pay to advise them.

While I understand your very sensible wish to understand the thinking behind the tax planning, and the associated risks, I am rather sceptical about your chances of obtaining the answers to questions of the kind you asked in your original query by reading around the subject, however assiduously you go about it. My experience is that answering this sort of question requires judgement and knowledge which can only really be obtained from years of experience in the field, not from reading books or articles.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[mmp97]

Nevertheless, I can't help feeling I MUST rely largely on developing my own understanding, supplemented by advice. I have a range of overseas properties. I intend to buy more. The value of the portfolio is small, at just over L1 million. So repeated turning to professional advisors clearly can't be justified. My tax planning won't be a 'one-off' event. It'll be an ongoing process. Each new purchase will bring up fresh issues, each life event too. So either I try to understand the legal and tax context myself or, it seems to me, best give up altogether.

Looks like I'll have to buy a copy of James Kessler's book. And quite a few others!

[TaxationWeb@BritishA]

It may help a bit to stop thinking of accountants and lawyers as product providers (a will, a tax return) and realize we're more like medical doctors in an HMO wellness practice. You see us before you get sick (have a plan to execute), not after.

As a general comment, I see a lot of posters who never leave contact details for themselves. So if there is a hidden subtext to our replies, the question askers never get it. Like, the one about ask a consultant. We could mean, "ask a consultant". Quite likely we do. But is there a hidden message you all aren't getting when you just post to a message board?

PS - This isn't an ad for me! Your area of question is not my expertise.

[johnfkavanagh]

By all means buy the Kessler book. I have a copy in front of me as I am posting this contribution. It contains "A note the lay reader" which says:

"This book is not intended as a self-help guide, and is addressed to professional practitioners, but it is readable for the lay person. Initiation in these matters must often be by the taxpayer. If you wish to research this subject in depth, and so take more control of your own tax affairs, read on. But for implementation you will usually need to find competent professionals to advise you. Self-help guides extol "the benefit of bypassing expensive lawyers"; but the bypass may prove the more expensive route in the long run."

I would probably put the warnings a little stronger than that - perhaps because I do not have a book to sell!

Nevertheless, I do not think that there are many advisers who will advocate that their client should remain in a complete state of ignorance regarding the tax planning carried out for them (although some clients choose to do so). That does not mean, however, that such knowledge as you may acquire is likely to put you in a position where you can formulate the plan, leaving professionals to do the "execution", any more than you can expect to tell your physician what condition you have and what treatment to prescribe.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663