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isle of man

Unplanned IHT Image

Domicile Confusion Could Result In Unplanned IHT

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Unplanned IHT Image

A leading Island tax advisor has warned that many businessmen and women currently working in the Isle of Man could be unintentionally within the scope of UK Inheritance Tax (IHT) – because they haven’t grasped the difference between tax residence and tax domicile.

UK IHT potentially applies just as much to Manx born residents holding UK investments as it does to those originating from the UK.

That’s the stark message from Kevin Loundes, Associate Director at Abacus, one of the Island’s longest established corporate service providers, where he heads up the firm’s dedicated, in-house tax team, providing comprehensive tax services.

“Simply ceasing to be tax resident in the UK isn’t the same as relinquishing a UK domicile. It’s an individual’s domicile position which is the key to establishing whether there’ll be a UK IHT liability on death,” explained Kevin, who has a wealth of experience advising high net worth individuals on residence and domicile issues.

“If an individual relocating to the Island were to displace a UK domicile of origin with a domicile of choice in the Isle of Man, it could result in considerable UK IHT savings.”

The key to UK IHT is an individual’s domicile at the time of their death and domicile is a very different concept from tax residence. “You may have moved from the UK and been living and working in the Isle of Man for many years, but that doesn’t automatically mean you’re no longer UK domiciled and free from the clutches of UK IHT,” he observed, adding that “people born in the Isle of Man may also not be totally free from UK IHT if they hold UK assets, such as property or shares in UK companies.”

Current UK IHT legislation has a nil rate band up to £325,000 on an estate. Anything above that figure is potentially taxed at 40%. By comparison, there is no IHT in the Isle of Man.

Kevin continued: “Briefly, each person is born with a domicile (a domicile of origin). An individual’s domicile of origin continues throughout their life, but may be displaced by a domicile of choice. As such, if an individual relocating to the Island were to displace a UK domicile of origin with a domicile of choice in the Isle of Man, it could result in considerable UK IHT savings,” he said. “In this scenario, simple tax planning could be undertaken to protect any UK assets (other than UK residential property) from UK IHT, without the need to sell such assets.”

“Proving an individual’s intention is notoriously difficult and requires significant evidence.”

“Adopting an Isle of Man domicile of choice would, generally, require an individual to relocate to the Island with an intention to remain on the Island permanently or indefinitely and to reside here as an inhabitant. Proving an individual’s intention is notoriously difficult and requires significant evidence,” said Kevin.

The onus of proof rests with the taxpayer or the executor of the estate – and not HMRC. “So individuals should take steps to ensure family members or executors are aware of evidence supporting a non-UK domicile claim in the event of HMRC challenge,” Kevin advised.

He also pointed out that changing your domicile to the Isle of Man from the UK wouldn’t bring immediate respite. In the eyes of the UK tax authorities, a person would still be deemed UK-domiciled for a further three years.

“It can be tricky demonstrating evidence of intention and, given someone’s estate would continue to be subject to UK IHT even if they died within that initial three-year period, it can really pay to consider the issue of domicile alongside the location of an individual’s assets sooner rather than later,” he concluded.

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Isle of Man: The Final Piece in the Private Client Jigsaw

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The Isle of Man continues to be recognised as an international finance centre of excellence, no more recently than during the Professional Advisor International Fund and Product Awards 2015 where they won ‘Best International Finance Centre’, fending off strong competitors like Jersey, Guernsey, Dublin and Luxembourg.

Having successfully encouraged diversification of its economy over the years, the Island is currently home to a number of high performing sectors, one of the most successful being its financial services industry. This is due to having a proactive government, a robust regulatory framework and the ability to recognise that engaging with its stakeholders and forming positive relationships with professional service providers, such as Abacus, helps for a successful business environment in which all can flourish.

Abacus is one of the Island’s longest established and reputable service providers currently celebrating 40 years of excellence in providing a range of financial and professional administration services. Delivering value through the provision of corporate, trust, funds and tax solutions, our longevity and success is predominantly due to our underlying principles of integrity, independence and insight.

However, some of our success can be attributed to being ideally located in a jurisdiction that is home to a politically stable and proactive government, a robust regulatory framework and evolving industry sectors – one of its biggest and most successful being Financial Services, a sector which offers all of the pieces in the Private Client jigsaw…well almost!

What does a Private Client jigsaw look like…? Firstly, there is no ‘typical’ private client – anyone working in the financial services industry knows that each and every client has bespoke needs and requirements. However for the purpose of this piece, a private client could be an ultra-high net worth individual who has acquired his wealth through the family business which is involved in UK property development; he owns a private jet and is currently looking to purchase a yacht.

So which pieces of the jigsaw does the Isle of Man have to offer? And where does Abacus fit in?

Firstly, the Isle of Man is the perfect jurisdiction for the establishment and operation of property holding structures, offering efficient and cost-effective arrangements for all types of property acquisition through various vehicle types, ranging from private wealth structures to collective investment schemes that can facilitate a commercially effective pooling of investor capital and a convenient reporting mechanism. With the right advice and structuring it can be a tax effective solution, particularly for UK non-resident and non-domiciled individuals.
At Abacus, we establish and administer property holding structures designed to meet our client’s individual objectives and requirements and provide a range of support services to ensure that the structure is correct and runs efficiently.

Secondly, the Isle of Man is a one-stop shop for private global aviation business. Not only does it have an aircraft register which has been voted the best in the world in a survey of leading aviation lawyers from around the globe, it offers owners a neutral nationality registration prefix, a secure mortgage register and a professional infrastructure with experience in aviation finance. The Isle of Man Aircraft Registry is renowned for its high customer service ethos and its focus on safety and service…what more could you want for your aircraft?

With strong relationships across the Island’s aviation industry, we assist owners and their representatives in understanding the diverse requirements associated with owning and operating an aircraft, whilst providing tax efficient ownership structures that facilitate aircraft operation on a private and/or commercial basis.

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Thirdly, is the Island’s strong history and heritage in shipping – it has one of the fastest growing ship registers in Europe and a Registry that provides a high quality and fast response customer service with a low cost scale of charges. It is also favourably on the much sought after ‘White List’ of the Paris Port State Control Memorandum of Understanding and has been a popular register for yachts, with a significant number currently waving the Isle of Man Ensign.

As a highly experienced corporate service provider, Abacus has significant experience in a wide range of international ownership structures and administration services for yacht owners, making us well placed to assist with the complexities of yacht ownership. We work with our clients to ensure that custody and management of their prized vessel stays on an even keel, from establishment of the structure through to its ongoing administration. We also offer yacht registration services but understand that choosing a flag for a vessel is very much a personal choice and that the Isle of Man may not always be the most practical or effective place for a client. It is here that our office in Malta, a jurisdiction which is growing rapidly in popularity amongst the yachting industry, can offer a full range of yacht ownership, registration and administration services in an alternative EU jurisdiction.

Another is that the Isle of Man is a cost effective alternative for private clients and their investment, fund management and administration requirements. With a well-established fund sector, supported by a range of professional service providers including investment managers, fund administrators, legal firms, custodians, auditors and fiduciaries, the Island offers a compelling and cost-effective alternative for the domicile of investment funds.

As an established fund services provider, Abacus offers a fully cross-border administration solution to fund managers and intermediaries establishing and operating fund structures for clients internationally. We deliver support by providing market leading technology customised to provide added value and improve our client’s relationship with shareholders, promoters and other service providers. Our proposition includes an efficient and effective cost base coupled with a client service ethos designed to add speed, quality and flexibility to the fund administration service.

As we come closer to completing the puzzle, we come to the Island’s Residence and Citizenship opportunities. The UK Tier 1 (Investor) Visa is aimed at High Net worth Individuals and their families who are looking to obtain alternative residence and citizenship by making a qualifying investment into the Isle of Man. An applicant must meet the eligibility and due diligence requirements and complete the application process but if successful can obtain British citizenship.

With understanding and experience of citizenship programmes, we are able to advise and assist individuals and their families wishing to apply for citizenship in an alternative EU jurisdiction. We can help clients choose an appropriate programme and country of residence (we can also offer three Maltese residence and citizenship programmes) and guide them through the application process to ensure that preparation and submission of their application is correct and processed in an expedient manner.

So now the picture is near complete, what is Abacus’ part in the puzzle? Simply, we are the final piece…we utilise the Island’s capability and apply our knowledge and experience to develop and provide solutions that keep pace with change and ever more sophisticated tax planning, to ultimately assist private clients in the effective structuring and management of their wealth. We are the piece that holds it all together and make the Private Client jigsaw complete!

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The Isle of Man as a Wealth Management Centre

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Peel Castle

Many readers may be familiar with the Isle of Man as a centre for motor-racing i.e. the famous ‘TT’ races or Manx Kippers! You may even be familiar with its Loaghtan sheep or award winning cheeses but how many of you will realise that the Isle of Man is one of the top 5 centres for space commerce or that it has a thriving eCommerce and eGaming industry or recognise it as a top centre for Wealth Management?

Well, it is pleasing to be able to say that, while the Island was relatively late into the financial services boom of the middle and late 20th Century – seeing the benefits of such only shortly before the creation of the digital world that we now know, it’s relatively recent development has had a significant advantage: the Island did not base its growth on an ‘old world’ economic model but took some inspired decisions early on in the age of the digital evolution or, for many of us, a digital ‘revolution’ i.e. the 1990s and 2000s, that have provided a sound, leading-edge platform for much commercial opportunity and wealth creation & management.

The Isle of Man has benefited by virtue of needing to differentiate itself from the other financial centres that grew up in the 1960s, 70s and 80s. As a UK Crown Dependency, located just off the North West coast of England, it has benefitted from the physical location as the closest Crown Dependency to the City of London and the UK finance sector and has been a conduit of much business to the United Kingdom, from listings on the Stock Exchange, to investment related undertakings such as collective investments or property purchases and commercial undertakings. However, merely replicating what the other finance centres did was not likely to provide long term growth opportunities on a sustainable basis and that was certainly evidenced when we saw the fallout from the recent Great Recession. By identifying some (niche) areas where we could punch above our weight, the Island has enabled real value-added economic development and opportunities for entrepreneurs and professional support services alike.

With a physical location in the centre of the British Isles, occupying an area of c500 square kilometres with a population of only 85,000, the Island is well positioned to provide a secure and accessible location from where we can act as a conduit for investment and business into and within the United Kingdom and the European Union, and, for international trade between Asia and North America. Being part of the ‘Common Purse’ arrangement with the UK enables VAT registration for single point of entry to the EU as a whole. Having significant Ship and Aircraft registers, Space/Satellite licensing ability, and, having an extraordinarily large-capacity and robust digital infrastructure with multiple access points allows the Island to offer the latest IT ‘platform’ to commercial operators, including the eGaming sector.

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Alongside the ‘digital’ platform i.e. IT and logistics stands the intellectual property opportunities that we can offer clients. Whether UK entrepreneurs wishing to engage in international commerce, international businesses wishing to trade within the European Union, wealthy individuals and families wishing to ensure a lasting wealth legacy (whether for their families or through charitable foundations etc.), the Isle of Man has a wealth of experienced professionals who can advise upon and structure their clients financial and business requirements, from the simplest to the most complex needs. The professional services sector has been dealing with wealthy individuals, families and corporate businesses for decades and the Island’s links with The City of London has ensured that our connections, knowledge and experience spans all areas of wealth creation and retention, whether physical property, in terms of homes, yachts, aeroplanes, intellectual property, in terms of copyright ownership etc, or the areas of family trusts, foundations and other structuring needs or (possibly) more mundane matters such as pensions and financial planning.

The Island has had to be nimble in its approach and has benefitted from a government that has been both proactive and supportive of business and wealth creation, whilst ensuring best practice in terms of adoption and adherence to international legal and taxation standards and professional expectations.

Our door is open to all-comers, large and small, mainstream and niche. We merely seek to offer professional solutions and adopt best practice in fulfilling our clients’ worthy and legitimate needs.

Whatever your financial or business interests and requirements, do take a little time to enquire how we may be able to assist you in your endeavours and see what we may be able to achieve together.

Wilton Wealth Management is an independent team of highly skilled financial advisers. Our fee based planners are experienced in all aspects of advanced wealth management, analysing complex situations and implementing solutions globally. They manage the financial affairs of a range of clients from professionals to individuals with significant family wealth.

The team will work with you to understand your lifestyle, goals, timeframes and financial requirements. Only then will they put a strategy in place to help you to achieve your overall objectives.

We work hard to create long-term relationships. Our ethos is to provide a service that is transparent and focused on tangible outcomes. We will meet you on a regular basis to track your progress and review your planning. If your goals change, as they often do, we will work with you to ensure the strategy changes as well.

 

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The Isle of Man – A Place To Make Things Happen

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As a tax neutral domicile the Isle of Man is perfectly situated geographically, fiscally, politically and constitutionally to form part of a structure that wishes to access Europe or indeed any other part of the world.

The Isle of Man is what is termed a Crown Dependency and thus has the Queen of England as its titular head. The basis of law is common law and statute-based and therefore English case law is usually persuasive. With the ever-increasing international influence on domestic legislation, aspects of EU law can be applicable in relevant areas also.

The Isle of Man service providers – lawyers, accountants, trust and corporate service providers (TSPs), Fund Administrators and investment fraternity – pride themselves on having a proactive approach to business wrapped around a pragmatic, value-for-money and professional approach. This ethos is heavily endorsed by both Government through its marketing body, the Department of Economic Development, and the Regulator (Isle of Man Financial Services Authority) and is encapsulated in the Isle of Man marketing approach strap line of “Isle of Man. Where you can”.

Import and Export
The Isle of Man, by virtue of its unique Customs and Excise Agreement with the United Kingdom and European Law, is treated as part of the UK and European Union (EU) for Customs , Excise and Value Added Tax (VAT ) purposes. The benefit of this is that the Isle of Man Customs and Excise can, through its Entry Processing Unit (EPU) housed within the UK’s Customs Handling of Import and Export Freight (CHIEF) Computer system, provide importers and their agents with the Ability to electronically declare goods imported to or exported from the United Kingdom / Isle of Man. Currently the system allows for electronic clearance without the need for the goods to physically travel to the Isle of Man. It is expected that a system of “Centralised Clearance” will be introduced across the EU.

Structures
The Isle of Man has two prime bodies of company law – the Companies Act 1931–2004 and the Companies Act 2006. There is some overlap between the sets of legislation, but essentially a company formed under the 1931 Act is a more traditional style of company with extensive legislative provisions. The 2006 Act company legislation is designed to be more flexible and modern. That being said, 2006 companies are being used for a comprehensive variety of transactions including listing on exchanges throughout the world, owning property, trading and general investment vehicles. Both vehicles can be registered for VAT as mentioned above.

There are no restrictions on who can own the shares in Isle of Man companies and there are no permissions required for the raising of capital. There are applicable provisions in respect of the public distribution and promotion of the shares in Isle of Man companies. The 1931 provisions are more formalised in the traditional prospectus sense whilst the requirements under the 2006 Company in simple terms require the prospectus to contain sufficient information for an investor to make an informed decision.

The Isle of Man also has Limited Partnership legislation, limited liability companies and Protected Cell Legislation which can be very useful for structuring.

As a Common Law jurisdiction Trust law is well established in the Isle of Man and can be part of the structure to hold shares. The Isle of Man also has the concept of Purpose Trusts which works well for structuring joint venture arrangements. Foundations are another vehicle that can be very useful for structuring as an alternative to a trust or company. The foundation is a statute based entity and is a favourable option for certain jurisdictions which are familiar with the concept.

Taxation Generally
The Isle of Man does not tax the income or capital gains of companies domiciled on the Isle of Man if they are owned by non-IOM residents.

Additionally, there is no stamp duty, inheritance tax or withholding tax. Probate fees are minimal.

However, there are various tax considerations regarding remittance of income that are imposed by the UK tax authorities. The advice in respect of any structure would need to be tailored according to the details of the structure.

Multi-Jurisdictional Structuring
There are no prohibitions on an Isle of Man company or other structure either being owned by non-IOM structures or individuals and similarly there are no restrictions on what an Isle of Man structure can own.

Isle of Man structures are involved in many structures and there are some well-established examples involving Canada, Ireland, UK Mauritius, Delaware, Hong Kong and Singapore, as well as European companies to name a few.

The reasoning can be both legal and for fiscal efficiencies as well as simply being pragmatic. For example, an investment may be in a company and it could be more efficient to buy the company rather than the investment directly.

Recent changes in the regulatory approach in the Isle of Man have seen the combining of the former pensions authority and financial services commission into one body known as the Isle of Man Financial Services Authority (FSA). This move is part of a response to the legal and financial services industry support for a commercial and progressive environment to support growth sectors while maintaining and enhancing the Isle of Man’s reputation as a jurisdiction of excellence.

FSA is now responsible for the Captive Insurance Industry which will not be governed by Solvency ɪɪ as well as the Life Industry that will be subject to Solvency ɪɪ. This two tier approach is indicative of the pragmatic and resourceful approach of the Government and the FSA to meet industry needs.

A product which has had strong legal input has been the development of a crowd funding regime and new banking model to support traditional banking partners.

The Isle of Man has a lot to offer: a well-run regime with strong growth and forward-thinking that makes it the place to make things happen.

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Immigration To The Isle of Man

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With the Isle of Man recently announcing a number of ‘Enterprise Isle’ initiatives to continue to grow the economy and boost inward investment (including the introduction of new tax incentives and changes in financial regulation), there is no better time to become a resident in the Isle of Man.

The Isle of Man is inside the Common Travel Area (CTA) which also includes the UK, Ireland and the Channel Islands. To reside within the CTA, non-EU nationals, need to obtain a residence visa. There are various types of visa, the two most popular types of residence visas can be obtained within the Isle of Man. These are known as Tier 1 Entrepreneur Visa and the Tier 1 Investor Visa.

Our family office services offer an excellent introduction to the Isle of Man. As a trusted adviser to your family and business, CCW’s services are uniquely crafted to give each family exactly what they need. We will take the time to get to know you, your aspirations and your concerns. We understand that there is nothing more intimate or important than family and that you will be entrusting personal matters to us. Through this process, we work to gain understanding and build long term relationships.

We have years of experience of managing family and international structures and have links to professional advisers in almost every jurisdiction on earth. We are proud of our approach, our people and what we can offer. We can assist you in this process. If you are interested in becoming resident in the Isle of Man and want to find out more, please contact Phaedra Bird at phaedra.bird@crowecw.im.

 

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