I've just noted that Guernsey is planning to introduce laws so that foundations can be established on the island.
They like to say this is for the benefit of clients from places like Russia. But that's a convenient charade that's blown apart by the publications of the so-called tax planning industry, as this publication from UK based Jordans shows.
As they say:
The Jersey Foundation's widest application will be as a “corporate trust” for civil code settlors, many of whom will not be resident in the UK.
Nevertheless the Foundation is likely to be used in future as an alternative to the trust for UK Founders.
In particular there are likely to be UK CGT advantages to be obtained in using Jersey Foundations.
There may also be UK income tax advantages compared with trusts, where the Founder and his or her spouse or civil partner are excluded from benefit (to avoid s624 and s720 charges) and the Foundation is receiving UK source income.
These foundations have only been made available recently.
There can be no doubt whatsoever that Jersey remains a tax haven / secrecy jurisdiction.
Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.
Jersey seeks to openly undermine the UK tax system.
And the UK government needs to say quite explicitly that it's had enough of it doing so and is going to stop it.
Why isn't it doing so? Could it be too many Tories use its services? Just a thought.
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Forgive me but when did legitimate tax avoidance become abusive? Have I missed a change in legislation?
Forgive me, but since when was getting round the law anything else but abusive?
How can full tax disclosure in accordance with all relevant anti-avoidance legislation be abusive? If the law doesn’t work as intended then the mechanisms are there to change the law, are they not?
UK tax legislation has been formed over many decades by statute and by case law, reinforced fully by the highest courts of the land. That has not changed. It cannot be abusive to do what the law says is lawful.
Apartheid was legal
Are you saying it wasn’t abusive?
Apartheid was legal in South Africa but it was illegal everywhere else and universally recognised as such. Of course it was viewed as abusive by everywhere else.
Tax evasion is legal in Switzerland (and in a very small number of other places perhaps). It is illegal everywhere else and universally recognised as such, including by secrecy jurisdictions other than Switzerland. Of course tax evasion is viewed as abusive by everywhere else.
Tax avoidance is legal in the UK and is legal everywhere else. I am not aware of any country in which tax avoidance is illegal. It is therefore NOT viewed as abusive by everywhere else.
It is impossible to compare apartheid with tax avoidance, only with tax evasion. And if you correctly did so then I would agree 100% with you.
You have deliberately ignored my point
You said if something was legal it could not be abusive
I showed it could be
You ignored that fact
please don’t waste my time again – I delete the comments of time wasters, and for good reason
It’s not really very clear to me exactly how the Jersey Foundation will deliver the tax advantages suggested by the extract except in the case of a non-UK domiciled founder, in which case it doesn’t offer anything so far as I can see it over the normal offshore trust structure.
A typical offshore trust shelters CGT on all (even UK) assets since s86 TCGA doesn’t apply if you are non-dom and whether or not you claim the remittance basis. You can also extract gains tax free if you have a non-res beneficiary or a UK res non-UK dom beneficiary (again, even on UK assets) so long as you keep the capital abroad. This is not Jersey being nefarious or cunning – it’s UK law. It’s hard to see what CGT advantages might be offered by a foundation structure here (what is better than zero tax?).
I find it difficult to believe that a Foundation would be of any benefit for UK-dom taxpayers. You’d surely be caught by either s13 or s86 TCGA which would mean the gain would be taxable on you anyway. I’d need to know more about them before I could really
Finally there might be some “secrecy” benefit (ie no-one would ever find out about it so you could evade the tax hahaha), well maybe, but again it’s hardly more secret than an offshore trust where you don’t have to file anything or even prepare accounts and it can all be done via nominees.
So I don’t think that Foundations are attractive because of some special tax treatment. Rather, I think it’s likely that they offer additional non-tax benefits such as flexibility to allocate between beneficiaries, permanence, etc.
Adam
“Finally there might be some “secrecy” benefit (ie no-one would ever find out about it so you could evade the tax hahaha), well maybe, but again it’s hardly more secret than an offshore trust where you don’t have to file anything or even prepare accounts and it can all be done via nominees.”
The EU savings tax amendments will appoint the Jersey Foundation a Paying Agent Upon Receipt.. .and so apply the savings tax provisions on the principal founder. Use of nominees won’t help whatsoever (that is so 90’s thinking).
Even worse for Johnny-come-lately Guernsey, they will have to auto exchange info on the principal founder for their spanking new foundations.
Agreed and apologies for forgetting. I was talking about CGT principally however.
RE “90s thinking”, I agree also that it must be right that nominees shouldn’t change anything for tax – it should be looked through. In practice though one suspects that this doesn’t happen in all cases, which Richard would no doubt consider to be something of an understatement.
Adam
I think you are absolutely right as far as the UK is concerned.
I come across clients from civil law jurisdictions who just don’t understand trusts and who want an estate planning vehicle to ensure the smooth transmission of their personal wealth after their death, mainly because they hold wealth all over the world, especially real estate, some of which is in common law jurisdictions and some of which is in civil law jurisdictions. Those who have grown up with trusts have no difficulty at all with the trust concept. Those from Latin America and the Middle East have much more of an issue with it and so much prefer Panamanian or Liechtenstein foundations but they don’t want Panamanian or Liechtenstein administration.
I don’t know how accurate this is, but I understand from someone “in the know” in Jersey that not a single one of the circa 100 Jersey foundations formed to date has been formed by a UK-domiciled founfer, and the vast majority are from Latin America and the Middle East.
The governments of the Isle of Man, Jersey and Guernsey live in a surreal word where the meaning of “regulation” is unhitched from normal logic and exploited as a means to make money without breaking their own perverted law. In this semi-comatose world distinction between “legal” and “ethical” is of no concern.
Trust us; that this is the case.
Almost forgot .. “Could it be too many Tories use its services?”
If you mean members of the Tory (part of) government and their influential friends and associates then YES they present a very powerful lobby group ready to exploit all and every tax avoidance vehicle..
There are some decent (if deluded) people who vote Tory and take no interest in “Foundations” or other schemes which have a damaging impact on so many things — not least the poor.
Premier Shareholders Group
Sorry – I’ve read many of your postings on this site and I don’t think you paint a fair picture at all of the Channel Islands and the Isle of Man.
I have dealt with them for the past 25 years and apart from occasional poor standards of service I think they are top-drawer financial services centres. I’ve found regulation there to be innovative but firm, and professional standards are very high.
You’ve obviously had a very different experience but from what I have read, your particular case is a long way removed from the type of business that the islands undertake on a regular basis. In my experience you may well have just been unlucky to have experienced such a problem. Your postings infer that this is the norm. I can assure you that it is not.
I think the point is probably the same as for the tax profession as a whole. You have some clients and advisors who do things properly and apply the UK tax law properly paying tax whenever due. You then have some clients and advisors that do not and simply regard any offshore jurisdiction as an opaque piggy bank in which funds can be stashed beyond the reach of the tax man.
As to whether it’s right or wrong to use the UK’s tax laws in the way they were intended to avoid tax like this (and let’s be clear – the use of offshore trusts isn’t some loophole, the meaning of the legislation is very clear – if the Treasury wanted s86 TCGA to apply to non-UK doms it would be very easy for them to do so), I think Richard’s views on this are crystal clear. I recently participated in a discussion on the Guardian web forum where I was told by several people that claiming higher rate relief on Gift Aid gifts amounts to abusive tax avoidance, so I think everyone draws the line in a different place.
@Patrick
The PSG notes that you write in the singular indicating the experience/opinion of one person.
Whereas the PSG reflects the views of hundreds which are very different to yours and do not equate with the adjectives “innovative” or “firm” to describe the Isle of Man’s regulatory bodies.
The PSG has found the Isle of Man government financial services regulator and the island’s Office of Fair Trading to be ineffectual and discriminatory. The government recently wrote that it was not bound by any adjudications issued by the UK Financial Services Commission; a remark to which the PSG would add … or to any other adjudication if it doesn’t suit a particular purpose.
The PSG has clean hands and a clear conscience and can provide a mountain of irrefutable evidence in support of the (many) allegations made about the Isle of Man government’s concept of “regulation”.
Sorry.
Richard – are you suggesting that you don’t ever take ANY deductions on your tax returns?