If you are UK resident and own assets abroad (eg non-UK real estate), or if you receive (or are entitled to receive), outside the UK, income from a foreign source (eg dividends from non-UK companies), you may be affected by the new UK Requirement to Correct (RTC) rules.
The RTC rules oblige UK taxpayers to correct past non-compliance with their UK tax obligations by 30 September 2018. After this deadline, a new, higher penalty regime will apply.
It’s possible to get around these rules but you’ll need to move fast in order to avoid the 30 September deadline.
Essentially there are 2 things you could do to avoid having to make such a declaration:
(a) Set up nil tax Offshore Company to own (ie take over ownership of) your foreign assets + set up a nil tax Private Foundation to own (ie hold the shares of) this Company; or
(b) Set up a nil tax Private Foundation to own (ie take over ownership of) your foreign assets
Whether to set up (a) or (b) depends on what kind of assets you hold. If you simply own an asset that produces a passive income stream then a Foundation alone should suffice.
The key plank underlying the strategy is how you manage/reconstruct the issue of ownership.
The Private Foundation (which is essentially Europe’s version of a Trust) started life in Liechtenstein and then began to slowly make its way across Europe (eg in Holland a Private Foundation its called a Schtichting) before being embraced by sundry Offshore Jurisdictions (including Panama, Belize, Nevis. Mauritius, Seychelles etc).
Under European Common Law a Foundation (which, unlike a Trust, is a separate legal entity) is presumed to be both the legal and beneficial owner of any asset it holds. What this means, in event of a law suit or tax investigation or regulatory inquiry, is you can swear under oath “I am not the legal or beneficial owner of this Company/Asset”.
Moreover under European Common Law the beneficiaries of a Private Foundation are not entitled to a distribution from a/the Foundation unless or until such time as the Foundation Council actually resolves to pay the beneficiaries a Distribution. So you and your family could be nominated as beneficiaries of the Foundation without needing to make any Declaration under the Requirement To Correct Rules.
One jurisdiction has taken this a step further ie the Seychelles by codifying theses aspect of European Common Law and placing them into Legislation: Section 71 of the Seychelles Foundations Act provides that the legal and beneficial owner of any asset held by a Seychelles Foundation is the Foundation itself.
And section 63 provides in effect that the beneficiary of a Seychelles Foundation is not entitled to a distribution from a/the Foundation unless or until such time as the Foundation Council actually resolves to pay the beneficiary a Distribution.
If you have income producing assets outside of the UK that you’re yet to declare to the UK Authorities you can avoid the new UK Requirement To Correct Rules by setting up a Private Foundation and then transferring ownership of the asset/s in question to the Private Foundation (or to an Offshore Company owned by the Foundation).
Additionally, you should be able to avoid having to pay tax on any income generated by the Private Foundation and or Offshore Company ie you should only be liable to pay tax in the UK when you receive income from the Offshore Company or Private Foundation (assuming the Company/Foundation is structured/managed a certain way).
NB Local laws can have an impact. Hence you should seek local legal/tax/financial advice before committing to set up an Offshore Structure.
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