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tax management

Trusts can be an effective tool to mitigate taxes on international assets and protect your wealth
Nazia Khan

Suppose you are the kind of customer that companies label ‘high net worth individual’. You own a successful business with interests across the GCC. You have substantial assets that are distributed across the world – stocks in Switzerland, a house in London, a villa in south France. But when the two certainties – death and taxes – come calling together, you might find yourself losing a considerable value of your international shares and property. Under UK law, for instance, inheritance tax is payable at a rate of 40 per cent on assets within a deceased person's estate. And, if a person were resident in the UK, even if he were to have a domicile in another country, he would be liable to pay income tax and capital gains tax on income and capital gains that arise in the UK.

However, there are options to limit capital gains tax and inheritance tax liabilities that may arise. Discussing these options in Oman were Michael Sun, managing director, Centurion Trust Group, and Anthony Thompson, partner, Lawrence Graham. According to them, the wealth protection planning you do in your lifetime is what will safeguard your assets after your death. The legal vehicle that they recommend is a trust structure, an agreement that separates control from the ownership of assets.

Why trust
Coming back to the example we started with, if your UK property is part of an offshore company and trust structure, then your beneficiaries would inherit the property without having to pay inheritance tax. Through their international networks, companies that manage trusts aim to achieve similar mitigation of tax liabilities elsewhere in the world. Principally, says Thompson, a trust does what you want it to do. "So, you could create a trust that is very flexible, where elements can be mixed and matched. You could write sharia rules into your trust." This can prevent the international assets of a Muslim being subject to non-sharia rules of inheritance, it can allow for non-Muslim heirs to be beneficiaries of Muslims, and it can do away with the complications of lengthy prob-ates that international estates would otherwise be subject to.

Among the different types of trusts that can be used is the discretionary trust, which gives trustees full discretion to decide which beneficiaries benefit from the trust assets at any given time. Sun informs that trustees also have a 'Letter of Wishes', written by the settlor, to guide them.

Sun and Thompson, who have been visiting Oman and the region regularly for several years now, believe that awareness about trusts is increasing. The transfer of control that a trust demands is one key issue that stops people from adopting it more freely. But wealth protection is a universal concern and the legalese that goes with it has been around a long time, so it is unlikely to go out of fashion. "In fact, I came across the probate of Napoleon Bonaparte in our archives some years ago," Thompson concludes with a laugh.