Beyond taxation

Recent proposed changes to the rules surrounding ‘resident non-domiciled’ individuals (non-doms) in the UK’s pre-election Spring Budget have sparked widespread discussion within the private client community. 

Media outlets, in particular, have focused on the potential tax implications and fuelled the idea that these changes will prompt a mass exodus of those who benefit from such arrangements, with the social media posts of some leading lawyers and advisers fanning the flames further. Destinations like the Bahamas, Monaco, Switzerland and, more recently, Dubai, with their reputations for favourable tax regimes, have been mooted to benefit.  

Perhaps surprisingly, Italy has also emerged as a contender, having as it does a regime that compares favourably with the UK’s tightening of tax measures. The Italian regime provides a number of options for those with tax at the top of their list priorities or those looking for an equivalent non-dom arrangement.

In Jersey, the notion of tax as the leading factor for wealth structuring has long been dispelled and, from a global service provider’s perspective, the past 12 months have seen only a small percentage of clients prioritising tax when discussing the benefits of a trust structure. Instead, solutions for intergenerational estate planning, mitigating probate administration delays, business continuity, caring for vulnerable beneficiaries and ensuring confidentiality amid cross-jurisdictional data-sharing agreements feature more prominently on clients’ agendas.

This puts jurisdictional considerations in a new light, where clients are driven less by tax motives and more by working with quality international finance centres, such as Jersey, that can combine stability, certainty and expertise with international capabilities. 

Trusting in trusts

Perhaps perceived as tax avoidance structures in the past, trusts have now come full circle, with their primary use today being rooted in their original purpose, established centuries ago, of providing security and continuity for families. 

Where they are really coming into their own though, is in supporting international clients with their global ambitions. Although some of those looking at the trust industry will remain focused on the tax consequences of a potentially new regime, there are a wide range of other emerging opportunities.

European families, who were traditionally wary of trusts, are now seeing their value. For example, Italian lawyers have reported that Italian authorities are comfortable with clients placing their non-Italian-situs assets into offshore  trusts, particularly in Jersey. This development helps dispel the myth that trusts are solely useful for tax benefits within the UK/common-law regime. 

This shift is particularly intriguing because, traditionally, trusts were seen as incompatible with civil-law European jurisdictions. However, the landscape is now changing. 

A client's perspective 

Consider a European national who has moved to Italy. Although efficient and fair tax frameworks are important to them, their primary concern is no longer tax but ensuring the succession and continuity of their business should anything happen to them. Instead, the client is focused on estate planning and maintaining business stability for their family.

Italy's new regime offers a flat tax rate of EUR100,000* per year and the opportunity to take advantage of a 15-year window where no tax is applied to the client’s worldwide assets. Jersey can then offer a complementary jurisdiction from which to manage and protect those assets.

Trusts play a vital role here, allowing the client to manage their assets effectively and without adverse tax consequences. They alleviate the stress of managing wealth and ensuring family wellbeing. Although owning luxury assets is appealing, the underlying concern is always about future planning and asset management. 

Bespoke planning 

For many international families, the real concern is no longer tax savings but the wellbeing of their spouses, children and future generations. Of course, another advantage of using a Jersey trust is that it can be adapted to meet a client or family’s bespoke needs, especially those with international dimensions, while also being backed up by tried and tested case law.   For example, if a client passes away, considerations such as who will control the business during and after the probate process, how jobs will be allocated and how wealth will be distributed, can all be tailored, ensuring that assets are not merely handed over but are used responsibly.  

Consider another client with children in different jurisdictions. How can they pass on their life’s work and business empire efficiently? A Jersey-law trust helps avoid complex probate procedures worldwide and mitigates the risk of operational disruptions.

Holding assets outside the family’s personal names protects them from difficulties arising through the often-protracted process of probate after death or incapacity, fiscal issues and potential business or family relationship breakdowns. 

Trust assets can support young entrepreneurs within the family and their business aspirations by funding start-ups or protecting the ventures by holding family businesses’ shares. For clients with young families, trusts ensure a future legacy by creating a framework for secure and responsible asset management in line with their wishes. Preserving wealth across generations is a challenge shared by families globally. 

The administrative advantage 

Managing assets across borders can be burdensome. Trusting assets to professionals with extensive international experience and the wealth of knowledge of the international advisors we work with alleviates this burden. Whether through the UK, offshore trusts or corporate structures, the convenience and expertise offered by trust companies are invaluable for day-to-day governance and administration. 

Future security 

As international trustees, we recognise that our expertise extends beyond the domestic tax rules of one particular jurisdiction; our primary focus is and always has been on our core responsibility of safeguarding our beneficiaries. 

As the landscape of international trusts evolves, Jersey stands at the forefront of this transformation with trusts, in particular, demonstrating their versatility and relevance beyond mere tax advantages.

They offer robust solutions for estate planning, business continuity and the protection of vulnerable beneficiaries, making them an essential tool for modern families navigating complex financial and legal environments.

The shift away from tax-driven motives towards a focus on security, continuity and responsible wealth management reflects a broader trend in the industry and, as we look ahead, it is clear that trusts will continue to play a vital role in supporting families across generations, preserving their legacy and providing peace of mind.

*As of 10 August 2024, the Italian government has doubled the annual flat tax for individuals transferring their tax residency to Italy, from EUR100,000 to EUR200,000.