Category: Private Client

Changes in terms of global tax regulations and increasing international tax transparency are vital to consider when implementing strategies to preserve family wealth and family business ownership structures.

To help address tax avoidance, the Organisation for Economic Co-operation and Development’s (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project has built on the original measures applying to large multinational businesses, by implementing a two-pillar approach. Pillar Two relates to new global minimum tax rules and aims to ensure income is taxed and paid at an appropriate rate. These new rules are in addition to the familiar regulations such as the Common Reporting Standard (‘CRS’), the US Foreign Accounting Tax Compliance Act (‘FATCA’), Substance Requirements, and ultimate beneficial ownership registers.

Dixcart Expertise in Relation to Wealth Structures

Dixcart are familiar with the issues facing families in an ever-changing international world.

We provide advice in terms of the location of family offices, their members, and businesses, as well as offering management and coordination for family offices, and liaison across the family members. We also provide trustee services in a number of jurisdictions.

Location

It is very important to consider where each of the relevant family members are resident and also where they are tax resident.

Structuring options also need to be considered and/or reviewed. The use and location of holding companies and/or family wealth protection vehicles such as; family investment companies, foundations, trusts needs to be planned carefully.

International investment structures need to be evaluated, including the holding of real estate, from a tax and asset protection perspective, in particular in relation to ‘BEPS.’

Organisation

Key areas that need to be organised to ensure that a Family Office runs as efficiently as possible and achieves its objectives include:

Confidentiality Management

A procedure needs to be developed to deal with relevant confidential information requests from financial institutions and third parties.

Contingency Planning

Rules and procedures should be in place to protect the family business in the case of unexpected events:

• Policies and procedures to underwrite business continuity.
• Use of appropriate legal structures to provide as much asset and wealth protection as possible.
• Consideration of ‘citizenship by investment’ programmes in reputable jurisdictions, to provide options for the tax residence of family members to be diversified.

Family Governance

• Successors need to be identified and their role discussed with them.
• The development of open communication amongst family members regarding decision making strategies and processes.
• A ‘Family Constitution’ is a useful way to formalise family governance and to prevent potential future conflict.
• Creation or identification of education and training programmes, to groom the next generation.

Family Office Advisory Services

• The segregation of the family’s wealth from the family business(es), should be considered.
• Development of a strategy regarding use of the profits arising from the family business and investments, that are not going to be re-invested.
• Creation of a team to manage the wealth.

Succession and Inheritance Planning

• Establishment and/or review of policies and procedures to ensure the adequate preservation and transfer of wealth to the next generation.
• A review of the ownership structure of each family business and other relevant assets.
• Understand how relevant local laws would apply, in relation to inheritance (for example; Civil Law, Sharia Rules etc.).
• Putting in place the most appropriate legal structures such as wills or other legal vehicles to pass wealth to the next generation.

Liaison

Time must be taken, by those managing the Family Office, to establish and develop close relationships with the relevant family and with other professionals advising them. Dixcart believe this relationship is critical.

As well as providing technical expertise in terms of structuring, professionals at Dixcart also understand family dynamics and frequently assist in offering advice as to how to improve communication and how to avoid potential conflict.

Additional Information

If you would like further information regarding a well-considered and comprehensive approach towards succession planning, please speak to your usual Dixcart contact or to a member of the professional team at the Dixcart office in the UK: advice.uk@dixcart.com

Can Anyone Invest in a UK Real Estate Even Without a UK Passport?

Yes.  Foreign individuals (over the age of 18) and corporate entities (subject to being registered at Companies House) may purchase or invest in UK real estate.

What Types of Investment can be made?

There are many ways to invest in UK real estate. Some of the more conventional routes in England and Wales include:

• Ownership of a legal “estate” in land to realise capital appreciation

An estate is an abstract entity carried on from medieval times and used to describe nothing more than time in the land.  The most common forms of estate ownership are freehold (owning land in perpetuity or “forever”) and leasehold (owning land for a number of years). Generally a term of years in a lease of property will be born out of a freehold estate or a leasehold estate for a term longer than the one in question. The owner of a term of years in a leasehold interest will be a tenant.

• Buy to let investments

A purchaser can acquire a freehold or leasehold interest (as above) specifically to rent it out to reap the rewards of a rental income. An investor will be looking closely for high net yields when deciding what to invest in and where.

• Real Estate Investment Trust (or REIT)

Providing an easier and lower cost way to invest in  property, a UK REIT (often holding a portfolio of property) provides a way to invest in buy-to-let property without having to buy property directly.  UK REITs benefit from an exemption from UK tax on both rental income and gains relating to their property investment business allowing them to redistribute up to 90% of rental income to their shareholders.

• Property development

This can take many forms. You might wish to buy land and sell it onto a developer having secured planning permission over it; buy an existing commercial building and apply for planning to convert it into residential property, convert adjoining houses into one large property and letting it out as a house with multiple occupation and so on.

You Have Identified a Property, What Next ?

Let the buyer beware

In the UK, a seller of  land has limited duties of disclosure to a purchaser because of the principle of caveat emptor (let the buyer beware).  In effect, a purchaser buys at its own risk. It is therefore important to instruct a property solicitor to carry out the usual pre-contract investigations on “title”, apply for the relevant searches and raise relevant enquiries of the seller. Careful investigation should minimise risk whilst flushing out any potential burdens and obligations that decrease value.

Site inspection

It is also advisable to carry out a site inspection and note any discrepancies between the plans and what is on the ground. You will also want to check for signs of the presence of occupiers,  rights of way and/or to carry out investigations such as soil samples in the event you intend to develop the land. Your professional advisor will be able to advise you further.

Who will hold “title” to the property?

This might be a corporate entity or an individual. Whenever land is held by two or more people concurrently there must be a trust. The legal title to the estate may be held by up to four persons as “joint tenants” on trust for the beneficial owners so that if any one of the legal owners dies, title to the estate passes to the survivor(s). Holding property as “tenants in common” however allows you to hold the legal interest on trust for the separate beneficiaries in equal or unequal shares as the case may be.

Finance

How will you finance the purchase and a potential deposit? Mortgages are difficult to come by in the UK for foreign investors.

Use of the property

Consider whether there are any restrictions on the use of the property.

Relocation to the UK

If you are intending on relocating to the UK, have you consulted with an immigration specialist to ensure all rules are complied with?

Tax considerations

It is advisable to speak to a professional as to the tax implications of your impending purchase or look for tax efficient structures.

Further information

If you have any questions and/or would like advice on any UK Commercial Property, please speak to us at: advice.uk@dixcart.com

We are frequently asked by our clients about the often-difficult topic of exit and succession planning.

This gives rise to several practical issues, especially where a trade sale is not likely, or the existing management team are perhaps not in a position to be able to raise sufficient funds to affect a traditional “Management Buy Out”.

One Solution that is often overlooked is an Employee Ownership Trust (EOT)

An EOT can be used to acquire between 51% and 100% of a trading company’s shares which are then held on trust for the benefit of all the company’s employees, on the same terms.

Unlike traditional employee share schemes, which give rise to direct employee ownership, the EOT allows for indirect employee ownership overseen by selected employee Trustees.

EOT’s have been shown to promote better business performance, greater commitment, and productivity from employees with increased staff loyalty, lower staff turnover and absenteeism. They also allow staff members to benefit from being involved in the management and future direction of the business.

Benefits to the Shareholder

• The sale by the existing business owner of over 51% of his/her shares in the company to a qualifying EOT, would be Capital Gains Tax (CGT) and Inheritance Tax (IHT) free.  This can prove to be a valuable relief given that the Business Asset Disposal relief limit for the reduced 10% rate of CGT is only £1 million;
• A market is created for the shares that might not otherwise exist;
• Unlike in a liquidation situation (which is often the only choice for small business owners to realise the value of the business), the company can continue to operate, and the shareholders and employees can still be part of that business;
• Typically, the sale of shares in a company to an EOT is funded by a mixture of existing cash, from within the company, and external loan instruments;
• It avoids the need for often complex and expensive negotiations when selling to a third party.

Benefits to the Company and Employees

• A trading company owned by an EOT is able to pay cash bonuses of up to £3,600 per annum to all employees (on a ‘same terms’ basis);
• These bonuses will be tax-free but will be subject to National Insurance Contributions (NIC’s);
• The company gets corporation tax relief on these tax-free bonuses;
• There are benefits in terms of increased staff motivation and job retention, as set out above.

Summary and Additional Information

An EOT can provide a tax-beneficial way for shareholders to realise value and to involve employees in the company that they work for, although the structuring and funding of an EOT requires careful consideration.

If you would like to find out more about how an EOT may benefit you and your business, please contact us: advice.uk@dixcart.com.

Introduction

The Dixcart Group has remained privately owned by the Dixcart Family Office since it’s foundation over fifty years ago in 1972. Excelling in the implementation of advice and provision of support and services for both straightforward and highly complex international Estate and Succession Planning since its foundation, the Group is intimately experienced in the complex nature of Family Office matters and therefore uniquely placed to act.

Guernsey Trusts and Foundations

Estate and Succession planning is a key concern for high-net-worth individuals and families looking to ensure the smooth transfer of wealth to future generations. The use of trusts and foundations is a popular strategy for high-net-worth individuals seeking to manage and protect their wealth for future generations. Guernsey, a British Crown Dependency located in the English Channel, is a leading jurisdiction for the establishment and administration of trusts and foundations.

Not only is the use of trusts and foundations a popular strategy they are also powerful tools for succession planning in Guernsey, offering a range of benefits for wealth preservation and management.

Trusts

A trust is a legal arrangement in which a person (known as the Settlor) transfers assets to a trustee, who holds and manages those assets for the benefit of one or more beneficiaries. In Guernsey, trusts are governed by the Trusts (Guernsey) Law 2007, which provides a flexible and modern legal framework for the establishment and management of trusts.

Trusts are a popular choice for estate and succession planning in Guernsey. By creating a trust, a Settlor can transfer assets to a trustee who will hold and manage them for the benefit of one or more beneficiaries. The trustee is legally bound to manage the trust assets in accordance with the terms of the trust deed, ensuring that the Settlor’s wishes are carried out.

Benefits Offered through the Use of a Trust

Trusts offer a range of benefits for estate and succession planning, including:

• Continuity: Trusts can be designed to have perpetual existence, ensuring continuity of wealth management across generations.
• Asset protection: Trust assets are held by the trustee on behalf of the beneficiaries, providing protection against creditor claims and legal challenges.
• Confidentiality: Guernsey trusts offer a high degree of privacy and confidentiality, with no public register of trusts or disclosure of beneficiary information.
• Tax efficiency: Guernsey has a favourable tax regime for trusts, with no capital gains tax, inheritance tax, or estate duty.

Foundations

Foundations are another popular choice for estate and succession planning in Guernsey and are governed by The Foundations (Guernsey) Law, 2012. A foundation is a legal entity which while similar to a trust in many respects, has some key differences.

Unlike a trust where assets are held in the name of the Trustee a foundation is a legal entity in its own right. Assets are held in the name of the foundation which is managed by a council of members or directors. The foundation’s constitution sets out the rules governing the management and distribution of its assets.

Benefits Offered Through the use of a Foundations

Guernsey foundations offer a range of advantages for estate planning, including:

• Legal personality: Foundations have their own legal personality and are more easily understood in civil law jurisdictions where the common law concept of a trust is not always compatible with local legislation.
• Continuity: Foundations can be designed to have perpetual existence, ensuring continuity of wealth management across generations.
• Asset protection: Foundation assets are held by the foundation on behalf of its beneficiaries, providing protection against creditor claims and legal challenges.
• Tax efficiency: Like trusts, Guernsey foundations offer favourable tax treatment, with no capital gains tax, inheritance tax, or estate duty.
• Flexibility: The Foundation Charter can be tailored to each individual Founder’s requirements and circumstances.

Conclusion

Trusts and foundations are powerful and adaptable tools for estate and succession planning. With a favourable legal and tax environment, Guernsey is a leading jurisdiction for the establishment and administration of these structures. High net worth individuals and families can work with experienced professionals at Dixcart, to design and implement a tailored estate and succession plan that meets their unique needs and objectives, ensuring the smooth transfer of wealth to future generations.

Further Information

For further information or if you have questions regarding succession planning advice, services and support please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission.

Dixcart Fund Administrators (Guernsey) Limited: Protection of Investors Licence granted by the Guernsey Financial Services Commission

Introduction

As a reminder, a Security Trustee is a person or entity who holds security on behalf of lenders. They are appointed to safeguard and manage the assets that are put up as collateral for a loan. Security Trustees play an important role in providing comfort to lenders and ensuring that they are protected in case of a borrower default.

Dixcart Trust Corporation Limited operate a number of corporate security trustee arrangements, primarily for property development and acquisition lending, particularly loan note and alternative debt arrangements.

Role of Security Trustees

The primary role of a Security Trustee is to act as an independent third-party that holds security on behalf of lenders. This means that the Security Trustee is responsible for managing the security, ensuring that it is properly maintained and protected, and that any proceeds from the security are distributed to the lenders in accordance with the terms of the security agreement.

Security Trustees are typically appointed in situations where there are multiple lenders involved in a transaction or where the security being provided is complex or difficult to manage. In these situations, a Security Trustee can provide a single point of contact for all lenders and can help to simplify the process of managing the security.

Responsibilities of Security Trustees

The responsibilities of a Security Trustee can vary depending on the specific terms of the security agreement. However, some common responsibilities include:

1. Holding and managing the security: The Security Trustee is responsible for holding and managing the security on behalf of the lenders. This includes maintaining the security, ensuring that it is properly insured, and taking any necessary steps to protect the security.

2. Distribution of proceeds: In the event that the security is realized, the Security Trustee is responsible for distributing the proceeds to the lenders in accordance with the terms of the security agreement.

3. Monitoring the borrower: The Security Trustee may be responsible for monitoring the borrower and ensuring that they are complying with the terms of the security agreement. This can include monitoring financial performance, compliance with covenants, and ensuring that the borrower is properly maintaining the security.

4. Taking enforcement action: Should the borrower default on the loan, the Security Trustee may be responsible for taking enforcement action to realize the security on behalf of the lenders. This can include taking legal action, selling the security, or taking any other necessary steps to protect the interests of the lenders.

Conclusion

In conclusion, Security Trustees play a vital role in providing security to lenders and ensuring that their interests are protected. They are responsible for holding and managing security on behalf of lenders and distributing any proceeds in accordance with the terms of the security agreement.

Additional Information

For additional information regarding security trustee services, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com. 

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission.

Malta – Innovation and Technology

Malta is currently implementing a strategy to help ensure that Malta is considered as one of the top jurisdictions in the EU for innovation and technology. It is therefore important to be aware of what exactly the Digital Finance Market is made up of currently and where it is heading.

Malta is a prime locality for a Micro test-bed and there are currently several schemes that have been introduced to attract innovation and technology-based start-up companies.

The EU and the Digital Finance Sector

As early as September 2020, the European Commission adopted a digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital operational resilience, to generate a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The aim of having rules which are more digital-friendly and safe for consumers, is to leverage synergies between high innovative start-ups and established firms in the financial sector while addressing any associated risks.

Position of Regulators

The financial services sector has seen a rapid acceleration in the trend towards digitisation, and as a result, many regulators are navigating how to best ensure the regulatory framework manages the risks of these innovations, without impeding their potential to significantly enhance the financial system.

Market interest around crypto-assets, and the underlying distributed ledger technology (DLT), continues to grow. The potential benefits of these innovations is to increase payment efficiency as well as reducing cost and expanding financial inclusion. In doing so there also a list of associated concerns that many regulators have highlighted and they are stepping up warnings to consumers and investors.

In a shift away from traditional business models, big tech players are beginning to offer a variety of platform-based financial services. Artificial intelligence and machine learning techniques are being incorporated into firms’ processes and are increasingly being used in tools designed for use by customers. Regulators are also taking note of ethical concerns where AI models insufficiently consider data cleaning, transformation and anonymisation.

A Unified Approach

As firms lean on outsourcing to minimise costs and deliver innovative products, there is growing scrutiny on cyber resilience and third-party outsourcing, and various conferences are being held in order to merge regulators and innovators into one stream with a shared focus. Currently there a number of sandbox projects which encourage innovative start-ups to participate in creating transparency between product offering and regulation.

The fundamental building blocks underpinning all of the emerging technologies and digitisation, are infrastructure and data. Firms need to ensure that they have the expertise to store and analyse their databases and have in place adequate governance and controls. They need to protect confidential customer and market data, while delivering services more efficiently across borders. This raises legal challenges, which regulators continue to debate.

Digital Finance Strategy

The Digital Finance Strategy sets out a general European position on the digital transformation of financing in the coming years, while regulating its risks. While digital technologies are key for modernising the European economy across sectors, users of financial services must be protected against risks stemming from increased reliance on digital finance.

The Digital Finance Strategy sets out four main priorities that promote digital transformation:

1. Tackles fragmentation in the Digital Single Market for financial services, thereby enabling European consumers to access cross-border services and help European financial firms’ scale up their digital operations.
2. Ensures that the EU regulatory framework facilitates digital innovation in the interest of consumers and market efficiency.
3. Creates a European financial data space to promote data-driven innovation, building on the European data strategy, including enhanced access to data and data sharing within the financial sector.
4. Addresses new challenges and risks associated with digital transformation.

Banks should be aware that such a strategy will bring about expectations regarding the implementation of new technologies to deliver financial services, enhanced data sharing that leads to expected better offerings by firms and enhancements of skills to navigate in this new financial eco-system.

Particular initiatives which form part of the Digital Finance Strategy include:

• Enabling EU-wide interoperable use of digital identities
• Facilitating the scaling up of digital financial services across the Single Market
• Promoting cooperation and the use of cloud computing infrastructures
• Promoting the uptake of artificial intelligence tools
• Promoting innovative IT tools to facilitate reporting and supervision

Digital Operational Resilience (DORA)

Part of the Digital Finance Package issued by the European Commission, the legislative proposal on digital operational resilience (DORA proposal), augments existing Information and Communications Technology (ICT) risk requirements, enabling an IT landscape which is expected to be safe and fit for the future. The proposal tackles various elements and includes; ICT risk management requirements, ICT-related incident reporting, digital operational resilience testing, ICT third-party risk and information sharing.

The proposal aims to address; fragmentation regarding the obligations of financial entities in the area of ICT risk, inconsistencies in incident reporting requirements within and across financial services sectors as well as the threat of information sharing, limited and uncoordinated digital operational resilience testing, and the increasing relevance of ICT third party risk.

Financial entities are expected to maintain resilient ICT systems and tools that minimise ICT risk with effective business continuity policies in place.  Institutions are also required to have processes to monitor, classify and report major ICT-related incidents, with the ability to periodically test the system’s operational resilience.  ICT third party risk is given greater emphasis, with critical ICT third-party service providers subject to a Union Oversight Framework.

In the context of the proposal, banks are expected to undertake a holistic exercise, assessing their ICT framework and plan for the expected changes. The Authority emphasises that banks should continuously monitor all sources of ICT risk whilst having adequate protection and prevention measures in place. Finally, banks should build the necessary expertise and have adequate resources to be compliant with requirements emanating from such proposals.

Retail Payments Strategy

The Digital Finance Package also includes a dedicated Retail Payments Strategy.  This strategy encompasses a new medium-to-long term policy framework that aims to enhance the development of retail payments within the evolving digital world. The four pillars of this strategy are;

1. increasing digital and instant payment solutions with pan-European reach;
2. innovative and competitive retail payment markets;
3. efficient and interoperable retail payment systems and other support infrastructures; and
4. efficient international payments, including remittances.

This strategy aims to broaden the acceptance network for digital payments, with the Commission also supporting the work towards the issuing of a digital euro.  In addition, the Commission wants to ensure that the surrounding legal framework regarding payments, covers all of the important players, with a high degree of consumer protection in place. 

How Can Dixcart Malta Help?

Dixcart Malta has a wealth of experience across financial services, and can provide a legal and regulatory compliance insight and help to implement transformational, technology and organisational change. 

When launching new innovative products and services, the experience of Dixcart Malta can help clients adapt to changing regulatory requirements and recognise and manage emerging risks.

We also identify and assist our clients in accessing various Malta government schemes, including grants and soft loans. 

Additional Information

For further information about Digital Finance and the approach taken in Malta, please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com.

Alternatively, please speak to your usual Dixcart contact.

Background: Malta Trusts

With the Great Wealth Transfer currently taking place, a Trust is a vital tool when it comes to succession and estate planning. A Trust is defined as a binding obligation between a settlor and trustee or trustees. There is an agreement that stipulates the transfer of the legal ownership of  property by the settlor to the trustees, for purposes of management and for the benefit of the nominated beneficiaries.

There are two types of Trust which are commonly utilised in Malta, depending on the specific needs of the individuals and desired purpose of the Trust:

• Fixed Interest Trust – the trustee has no control over the interest to be given to the beneficiaries. The Trust therefore defines the interest.

• Discretionary Trust – the more common type of Trust, where the trustee defines the interest issued to the beneficiaries.

Why are Trusts the Best Structure for Asset Preservation and Succession Planning?

There are several reasons as to why Trusts are effective structures for asset protection and succession planning, including:

• To preserve and generate family wealth in a tax efficient manner, avoiding the division of the assets into smaller and less effective shares in each generation.

• The assets of the trust are segregated from the personal assets of the settlor hence, there is a further layer of protection against insolvency or bankruptcy.

• The settlor’s creditors have no recourse against the property settled into the Trust.

When considering Maltese Trusts:

Malta is one, of a minority of  jurisdictions, where the legal system provides for both Trusts and Foundations.  A Trust can remain active for a period of up to 125 years from the establishment date, a duration which is documented in the Trust Instrument.

• Maltese Trusts can either be tax neutral, or be taxed as companies – income taxed at 35% and the beneficiaries will receive 6/7 refund on active income and 5/7 refund on passive income, as long as they are not resident in Malta.

• Lower Set Up Fees to establish a Trust in Malta. Significantly lower administration and set up costs are needed, compared to several other countries. Costs such as; audit fees, legal fees, and trust management fees are much lower in Malta, while the professional services provided, using a firm such as Dixcart, are of a high standard.

Key Parties to a Trust

The comprehensive definition of a Trust recognises three elements, which are; the trustee, beneficiary, and the settlor. The trustee and beneficiary are defined as the key components of a Trust in Malta, while the settlor is the third party that establishes the property in a Trust.

The Settlor – The person who makes the Trust, and provides the trust property or the individual that makes a disposition from the Trust.

The Trustee – Legal or natural person, holding the property or to whom the property is bestowed within the terms of the trust.

The Beneficiary – The person, or persons, entitled to benefit under the Trust.

The Protector – Can be an additional party introduced by the settlor as one who holds a trustworthy position, such as a family associate, lawyer, or member. Their roles and powers may include, but not be limited to, acting as an investment advisor, having the ability to remove trustees at any time, and to appoint additional or new trustees to the trust.

Different Types of Trust in Malta

Malta Trust Law provides for the different types of Trust, that can be found in most traditional trust jurisdictions, including the following:

• Charitable Trusts
• Spendthrift Trusts
• Discretionary Trusts
• Fixed Interest Trusts
• Unit Trusts
• Accumulation and Maintenance Trusts

Taxation of a Trust

The taxation of income attributable to a Trust and all matters relating to taxation on the settlement, distribution and reversion of property settled in a Trust, are regulated by the Income Tax Act (Chapter 123 Laws of Malta).

It is possible to elect for Trusts to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee, if it is distributed to a beneficiary. In addition, when all of the beneficiaries of a trust are not resident in Malta and when  the income attributable to a Trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees, in the jurisdiction where they are resident.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in; Cyprus, Guernsey, the Isle of Man, Malta, and Switzerland for over 35 years and has extensive experience in the formation and administration of trusts.

Dixcart Malta can provide trust services through its wholly owned group company Elise Trustees Limited, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

For additional information regarding Trusts in Malta and the advantages that they offer, speak to Jonathan Vassallo in the Malta office: advice.malta@dixcart.com

Background

Switzerland has a long established reputation for professional expertise when managing the affairs of wealthy private individuals. For many years Swiss Trustees have provided efficient tailored services for trusts, which are a flexible instrument, particularly useful for estate planning and asset protection.

The supervisory and legal landscape for trusts is changing in Switzerland, as reflected in the fact that the Federal Council implemented new Trustee regulations in 2020, and proposed the introduction of a Trust law into the Swiss Code of Obligations.

These two new regimes will reinforce the competitiveness of Switzerland as a financial centre, and boost the Swiss Trust industry’s quality, integrity and accountability, while creating a uniform competitive landscape for Trustees.

What are the Regulations About?

Up to now, Trustees were only supervised in relation to compliance with Anti-Money Laundering obligations. Swiss professional Trustees will now have to comply with; structural, organisational, business-conduct and audit requirements.

Trustees operating in Switzerland must now; register with a Supervisory Organisation, comply with statutory requirements and apply for a licence from the Swiss Financial Market Supervisory Authority (FINMA), before December 31^st 2022.

Licensing Exemptions

Private trust companies (PTCs) are exempt, as well as single family office structures (“family-ties exemption”). This exemption also applies if the beneficiary is a charity.

Regulatory Obligations

• Trustees must have a minimum paid up capital of CHF 100,000 with the added obligations to maintain adequate financial security and/or professional liability insurance. 

• Management by the Trustees must be carried out by a minimum of two ‘qualified directors’ of good reputation.

• Trustees must have appropriate risk management and adequate internal control systems.

Where Are We Today?

As of December 2022, the majority of Swiss Professional Trustees still need to obtain a licence from FINMA. 22 professional trustee authorisations have to date, been granted. To put this in context currently 330 Trustees have submitted applications.

A New Swiss Law on Trusts

Currently, there is no Swiss law relating to trusts.

However, foreign trusts have been legally recognised since July 2007, with the implementation of “the Hague Trust Convention of 1 July 1985 on the Law Applicable to Trusts and their Recognition”.

Since then, Swiss Trustees have administered trusts governed according to foreign laws. This implies that the Trustee needs to have good knowledge of the foreign law in order to comply with its fiduciary duties. It also means that Swiss administration and the Courts have to apply a foreign law, within the internal Swiss system.

Swiss trust law would:

• Offer new applications and business opportunities in wealth structuring and, close the current gap in the legal system, with the use of a Swiss, rather than a foreign instrument.

• It would also provide greater certainty to Swiss based Trustees, who currently may well need to have knowledge of a number of different foreign trust laws.

A preliminary draft bill and an explanatory report on the introduction of a Swiss Trust Law, were published in January 2022 and sent out for consultation. The preliminary draft bill introduces explicit provisions on the taxation of trusts.

The debate in the Chambers of Parliament will commence in the spring session of 2023 at the earliest. Therefore, the bill is not expected to come into force before 2024.

The Dixcart office in Switzerland will keep you fully updated regarding the progress and status of Swiss trust law, during 2023.

Dixcart Trustees (Switzerland) SA

Dixcart Trustees (Switzerland) SA has been providing trustee services for over fifteen years. We are a member of the Swiss Association of Trust Companies (SATC), and are registered with the ”Organisme de Surveillance des Instituts Financiers” (OSIF).

We are fully confident that Dixcart Trustees (Switzerland) SA meets the regulatory obligations required by the Swiss Federal Act on Financial Institutions, that came into effect at the start of 2020.  Our application has been submitted to FINMA and is within the licence process.

Additional Information

If you would like additional information regarding trusts and Switzerland, please contact Christine Breitler at the Dixcart office in Switzerland:   advice.switzerland@dixcart.com.

What is a Guernsey Property Unit Trust (“GPUT”)?

A Guernsey Property Unit Trust (“GPUT”) is a form of Guernsey trust commonly used when structuring UK real estate acquisitions.

The assets of a GPUT are held in the name of the trustee on behalf of the unitholders (beneficiaries) who will hold units in the GPUT corresponding to their interest in the underlying asset. The legal ownership of the asset therefore rests with the trustee whilst the unitholders have the beneficial interest in the trusts’ assets.

The trustee will typically appoint a Property Manager to manage the real estate held.

Uses and Benefits of a GPUT

A GPUT can be used as a joint venture vehicle and / or as a regulated fund depending on the client’s requirements and offers a number of advantages. Up until 2006 a GPUT could benefit from an exemption to UK Stamp Duty Tax (“SDLT”). Whilst that exemption no longer exists, a GPUT is still an attractive investment vehicle with the following benefits:

• No Stamp Duty payable on transfer of units in a GPUT (where the GPUT qualifies as a ‘collective investment scheme’)
• No liability to income tax or capital gains tax for the Trustee in Guernsey
• The GPUT may be transparent for UK income tax when correctly structured as a “Baker” trust
• The GPUT is widely recognised by banks and financial institutions in the UK and elsewhere facilitating access to funding
• Where the GPUT is structured as a collective investment scheme it can be used as a vehicle for the pooling of investor’s funds
• No requirement to be audited (where not regulated or listed)
• Flexibility in relation to unitholder’s rights, such as different classes of units to allow certain unitholders to receive varying returns on their units
• A GPUT may (subject to tax advice) offer unitholders a greater degree of influence over the trustee, by allowing them to appoint directors to the board and/or include limitations to trustee powers under the terms of the trust instrument.

Rights of Unitholders

The rights of the unitholders will be largely governed by the terms of the trust instrument which will contain commercial terms that govern the GPUT, such as voting thresholds, rights on such matters as redemption, transfers and removal of a trustee. 

The trustee is independent of the unitholders, however, unitholders are able to maintain a degree of control over the trustee by including limitations on the powers of the trustee under the terms of the trust instrument.

GPUT Trustee

It is typically recommended that a special purpose vehicle (SPV) is established to act as the trustee to a new GPUT which then allows for limited liability status for the trustee.  Although the provision of trustee services is a regulated activity in Guernsey, an exemption from this requirement is available where the following criteria are met:

• The SPV trustee is administered by a Guernsey regulated fiduciary service provider, and
• The SPV trustee’s sole purpose and only activity is to act as the trustee to the NEW GPUT

A GPUT must have at least one trustee, however in practice a GPUT will often have two SPV trustees if the GPUT structure is to hold UK real estate in order to address overriding interests in English law.

A SPV trustee can be owned by a foundation or a charitable or non-charitable purpose trust.

Regulation of a GPUT in Guernsey

The requirement of a GPUT to be regulated will be dependent on the number of proposed unitholders and the sophistication of those individuals.

Where a GPUT is regulated under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (the “POI Law”), it will qualify as a “collective investment scheme”, being any arrangement relating to property (of any description):

• where the purpose is for investors to participate in, or receive profits or income arising from, the acquisition and disposal of the property, and
• in which investors do not exert management or control over the property to which the arrangement refers, and
• under which:
  • The contributions of the investors and the profits and/or income out of which payments are to be made are pooled, or
  • The property is managed as a whole, by or on behalf of, the person responsible for its management

Where a GPUT is regulated under the POI Law it can also be established under the registered or authorised fund regime and as a Private Investment Fund (“PIF”).

Dixcart Team

Any persons wishing to establish a Guernsey Property Unit Trust (GPUT) will require both legal and tax advice to ensure that the GPUT is structured to meet their needs as well as a licensed Guernsey administrator to provide trustee services.

Dixcart in Guernsey hold both a full Fiduciary Licence and a Protection of Investors Licence issued by the Guernsey Financial Services Commission

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart is licensed under the Protection of Investors (Bailiwick of Guernsey) Law 1987 to offer PIF administration services, and holds a full fiduciary license granted by the Guernsey Financial Services Commission.