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UK TAXATION OF ISLE OF MAN FOUNDATIONS

UK TAXATION OF ISLE OF MAN FOUNDATIONS. Phillip Dearden PKF (Isle of Man) LLC Palace Hotel 18 January 2011. Introduction. No specific legislation for Foundations Foundation has some characterisics of Trust Property donated and dedicated Vests in Trustees or Foundation

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UK TAXATION OF ISLE OF MAN FOUNDATIONS

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  1. UK TAXATION OF ISLE OF MAN FOUNDATIONS Phillip Dearden PKF (Isle of Man) LLC Palace Hotel 18 January 2011

  2. Introduction • No specific legislation for Foundations • Foundation has some characterisics of • Trust • Property donated and dedicated • Vests in Trustees or Foundation • Beneficiaries with rights or expectations • Controlling parties subject to Fiduciary duties • Company • Separate legal personality • Liability limited to value of fund • Unlimited duration • Could be treated as either as context permits • Need to look at anti-avoidance provisions • Assess appropriateness • Case-by-case basis An introduction to PKF 16 June 2003 11th January 2011

  3. Introduction • Identify taxable events • Consider Taxation • Inheritance Tax • Founder • Foundation • Capital Gains Tax • Founder • Beneficiaries • Income Tax • Founder • Beneficiaries • Examples An introduction to PKF 16 June 2003 11th January 2011

  4. Foundation Council + Registered Agent Isle of Man Foundations An introduction to PKF Foundation Instrument Objects and Rules Founder + Dedicator Beneficiaries Possible Enforcer Income Capital Profits 16 June 2003 11th January 2011

  5. Key Characteristics • Founder • Like a settlor? • Is he a Participator? • Depends on rights • Beneficiaries • Purpose to benefit specific purpose • Possibly philanthropic • Council • Like a Board of Directors • Guardian/Enforcer • Like a Protector An introduction to PKF 16 June 2003 11th January 2011

  6. Trusts and Companies • Trust/Settlement for IHT? • S43 IHTA 1984 • Settlement for IHT Act • “means any disposition...held in trust....” • Not definite but possible • Trust for s86? • Narrow definition • Foundation probably not a trust for s86 • Trust for s87? • Wider definition s97(7) • Probably a trust • If there is “bounty” • Close company for s13 and IHT? • Probably a company/body corporate • Is it “Close” • Who are Participators? • Not loan creditors re IHT! An introduction to PKF 16 June 2003 11th January 2011

  7. Inheritance Tax • No specific mention in Legislation • Funding of the Foundation • Chargeable transfer • Nature of recipient not relevant • Possible Excluded Property • No IHT • Watch UK assets • 10 Year Events • Distributions • Exit charges • Gift with Reservation (GWR) An introduction to PKF 16 June 2003 11th January 2011

  8. Capital Gains Tax • Foundation disposals • Probably no tax for Foundation itself • Attribute to settlor (s86 TCGA) • Narrower definition of trust • Should be avoidable !!! • Only relevant where Founder/Settlor UK resident • Attribute to beneficiaries (s87 TCGA) • Wider definition of trust • Possible tax on distribution • Attribute to Participators (s13 TCGA) • Probably a company for s13 • Is there a UK Participator? An introduction to PKF 16 June 2003 11th January 2011

  9. Income Tax • UK source income • Possible charge for trustees • Founder Attribution (s624/720) • Arising basis • Only if settlor UK resident • Beneficiary Attribution (s731) • Only when benefits provided An introduction to PKF 16 June 2003 11th January 2011

  10. Foundation Council + Registered Agent Isle of Man Foundations - Taxation An introduction to PKF Foundation Instrument Objects and Rules S65 IHTA 10 Year charges Founder + Dedicator S94 Attribution of “gifts” to Participator in Close Company Beneficiaries Possible Enforcer S720/s624 Attribution to Founder S731 Attribution to Beneficiaries (On Receipt) S13 TCGA Attribution to Participator S86 TCGA Attribution to Settlor/Founder (Arising) S87 Attribution to Beneficiary (On Receipt) Income Capital Profits 16 June 2003 11th January 2011

  11. Example Scenario 1 • Founder non-resident and non-domiciled • Settled non-UK funds • Beneficiaries now in UK eg children • No tax on creation • IHT Excluded Property • Income and Gains • No tax as profits rise • Possible Accumulations • S87 capital gains • S731 Relevant Income An introduction to PKF 16 June 2003 11th January 2011

  12. Example Scenario 2 • Founder UK-resident and UK-domiciled • Settled funds • Beneficiaries also in UK eg children • Possible IHT on creation • IHT 10 year charges • Income and Gains • Possible tax on settlor • As profits arise • If not trust for s86 • Possible CGT shelter? • Also watch s13 and Participator charge An introduction to PKF 16 June 2003 11th January 2011

  13. Introduction • Overview • Identify taxable events • Inheritance Tax • Capital Gains Tax • Income Tax An introduction to PKF 16 June 2003 11th January 2011

  14. UK TAXATION OF ISLE OF MAN FOUNDATIONS Phillip Dearden PKF (Isle of Man) LLC Palace Hotel 18 January 2011

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