The United Kingdom has an unparalleled depth of precedent for matters relating to trusts and the legal system is renowned globally for its fairness, equity and reliability. It is no coincidence that many international agreements are written under UK law regardless of whether the transaction has a UK based element. It is indeed a fact that the highest court of appeal for the UK dependent territories, the Supreme Court, gives dependent International Financial Centres added reliability and integrity should disputes arise.
The United Kingdom strikes a fine balance between confidentiality and transparency, the latter being an ongoing initiative amongst the EU and OECD countries. Whereas from 2016, beneficial ownership of UK companies will be likely to be recorded on a public register, this exposure does not currently apply to beneficiaries of trusts. Transparency adds to the substance of corporate vehicles, whilst at the same time, legitimate privacy for settlors and beneficiaries may be maintained by placing ownership of shares into trust.
The reputation and political and economic stability of the UK is a further key characteristic.
Costs in relation to the creation of trusts in the UK are comparable with those in leading reputable International Finance Centres such as Jersey and Cayman. There are tax issues that need to be considered, particularly decennial inheritance tax charges which also apply to offshore trusts that own UK assets. In the right circumstances, tax reliefs are available. Advice must be taken before establishing companies or trusts in the UK, or offshore, but the benefits can often outweigh the advantages of trusts set up in zero tax countries.
Trusts are widely used in many areas of financial and private transactions. There are no provisions within UK law to create foundations (although Jersey, a UK dependent territory, has an excellent foundation law) hence trusts tend to be the preferred structure.
We do not anticipate the introduction of laws to enable the creation of UK foundations. However, companies may be created to serve a similar purpose, for example by creating differing classes of shares to split economic and controlling interests.
The concept of the common law trust is one that has not been widely used in the past in China but is becoming increasing relevant with growing Chinese outbound investment into the UK. The concept of handing assets to trustees who do not have a long relationship with the settlor is an uncomfortable one, but options exist to grant reserve powers (with care) or to appoint a protector. However, the principle of the trust remains that full legal title of assets is transferred to trustees.
The Small Business Enterprise and Employment Act 2015 will have an impact on UK companies by way of creating a new corporate of register of “persons with significant control”. Such persons are defined as individuals with over 25% interest in the shares or voting rights of a UK company (whether direct or indirect via nominee shareholders or other UK or offshore companies in which the person has a majority stake). Trustees may be considered persons with significant control. We anticipate the use of discretionary trusts to preserve legitimate confidentiality for ownership of UK companies.
Contributed by: John Swann, Director Business Development of Jordans Trust
