The ability of trusts to mitigate the amount of tax payable not being recognised by many investors, it is claimed

Trusts are being under used as a tool for offshore investment business, particularly in terms of mitigating tax, according to new research.

Only 5% of offshore advisers surveyed globally use trusts for the majority of their clients, with nearly three quarters of advisers using trusts for just 10% of their client base, the research from Skandia International shows.
The firm believes that trusts of one form or another could be appropriate for a much larger proportion of offshore investment business.

The report indicates that volatile markets may have forced some advisers to focus on investment performance and on reassuring nervous clients. However, advisers should consider how an investment is likely to be taxed when funds are withdrawn, and trusts can help to mitigate the tax payable, it said.

Rachael Griffin, head of product law and financial planning at Skandia International said many advisers are using trusts for only a small proportion of their clients, when trusts can be relevant to a much larger proportion of clients.
‘While investment growth does matter, it is important advisers and investors do not let all their hard work go to waste by getting caught out when it is time to withdraw money from the investment,’ she explained. ‘It may not be until a policyholder’s death that a large tax charge occurs, but having appropriate plans in place to mitigate any tax liability will ensure that investors are taxed efficiently and not taxed unnecessarily,’ she added.

In a survey of over 270 advisers, 38% of advisers agreed asset protection was the top reason to use a trust, with another 38% of advisers stating inheritance tax planning as the number one reason. Some 15% of advisers said they use trusts for tax efficiency and another 9% have used trusts for other reasons.

Of those surveyed 69% said the majority of their client base is made up of expatriates, a group which may be eligible to pay tax in both their resident jurisdiction and in the jurisdiction of domicile.