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When considering any form of offshore tax planning you really need to essentially wear ‘two hats’. The first hat is the UK hat, & the second is your offshore hat. You need to ensure that you consider the total tax impact, both in the UK, as well as offshore to decide whether your tax planning strategy is worthwhile or not.

Different offshore tax planning strategies

Firstly, you could move overseas. Essential to this is that you really need to ensure you cease to be UK resident & ordinary resident. If you do, you can usually avoid UK Capital Gains Tax provided you are absent for at least five complete tax years. Of crucial importance here is the overseas dimension. In particular you really need to ensure that you are not going to suffer taxes overseas or if you do you are fully aware in advance of the tax burden you face.

When considering moving overseas, there’re a number of traditional tax havens that are continually popular with tax savvy expats such as Switzerland, Monaco, Cyprus, Malta & Andorra.

Secondly you could consider using an offshore company. If you’re going overseas, using an offshore company is pretty much standard practice for international trading. If though, you are remaining to live & work in the UK it’s much more hard to use an offshore company tax efficiently, at least for UK tax purposes. There is more. That’s not to say it is impossible, just that it will be looked at closely by the tax authorities.

There are a raft of anti avoidance rules to consider. Essentially you have got the best chance of obtaining tax benefits with an offshore company if you can show it is controlled from outside the UK, & that you’re either non UK domiciled or that you had a sound business motive for incorporating the company overseas. If you can achieve this, the benefits can be enormous as any overseas profits will escape UK tax altogether (and in most cases any tax overseas as well). Using an offshore company in conjunction with an offshore trust (see below) can assist in obtaining these benefits as well.

Thirdly you could use an offshore trust. Offshore trusts (and their ‘cousin’ the foundation)are an old favourite for international tax planners. There is more. There’s been a global clampdown on using trusts (given the perception that they were established for tax avoidance motives) — so are they still an effective tool in reducing UK & overseas tax liabilities?

The answer — yes they’re but in pretty limited circumstances. If you are a UK citizen born & bred the anti avoidance provisions that apply to any offshore trusts you form are in some ways stricter than if you formed a UK trust. OK. So you could find yourself in a worse tax position than if you established a UK trust. It is not always like this though & there’re circumstances where offshore trusts can still be used tax efficiently.

Most notably, there’s the position of non UK domiciliaries. Again they’re in a privileged position as many of the tax anti avoidance rules do not apply to them so they can obtain tax benefits from using trusts much more easily. There’re also specific tax exemptions & opportunities for trusts that are for income tax avoidance only (as opposed to capital gains tax avoidance) or where close family will not actually be listed as beneficiaries.

Offshore trusts are however still popular for people coming to live in the UK. Settling overseas assets into an offshore trust before obtaining UK residence or domicile status can lead to big tax savings in the long term (particularly in terms of inheritance tax).

Lee J Hadnum is a rarity among tax advisers having both legal & chartered accountancy qualifications. After qualifying as a prize winner in the Institute of Chartered Accountants entrance exams, he went on to become a Chartered Tax Adviser.

He previously ran his own his own tax consulting firm, & has written a number of tax books as well as editing the popular tax planning website www.wealthprotectionreport.co.uk.

For a limited time, Lee is offering a Free report on Offshore Teleworking from his Offshore Tax Site http://www.wealthprotectionreport.co.uk Wealth Protection Report offers a wide variety of information on tax matters including, Capital Gains Tax, Inheritance Tax & UK Emigration.

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