Rock solid - why consider Gibraltar for wealth- and succession-planning needs

Sunday, 01 December 2013
Emma Azopardi Lejeune and Peter Montegriffo on why clients should consider Gibraltar for their wealth- and succession-planning needs.

Often dubbed as ‘Britain in the sun’, Gibraltar, with its warm weather and British culture, is an attractive location for individuals wishing to relocate to a tax-efficient jurisdiction, and for those who are simply looking to do business.

Legal framework

As a British Overseas Territory, Gibraltar’s infrastructure (including its legal and education system) is based largely on that of the UK. Gibraltar has its own government and its laws (modelled on English statutes) are passed by its own parliament. Gibraltar has a common-law legal system and, in the absence of local precedents, English case law is of persuasive authority.

In addition to its strong ties with the UK, Gibraltar is part of the EU (although it is exempt from the Customs Union, the requirement to levy VAT and turnover taxes, and the Common Agricultural Policy). It joined in 1973 when the UK became a full member, and is widely recognised as an established and separate EU jurisdiction. Gibraltar transposes EU Directives into its laws and is fully compliant with EU regulations.

Gibraltar’s stable political and economic environment makes it an ideal place for individuals wishing to manage and safeguard assets. This, coupled with the absence of capital gains tax, inheritance tax, withholding tax and VAT, makes Gibraltar a popular jurisdiction for wealth and succession planning.

Assessing client needs

To arrive at the most viable structure for clients, it is important to consider their full circumstances (in particular where they are domiciled and resident for tax purposes) and where their assets are located. Every client will be considered on a case-by-case basis and it is common to work with tax advisors in the appropriate jurisdictions to create robust structures and mitigate risk.

A typical client would either have and be actively involved in a business in an onshore jurisdiction, or be a retiree who benefits from an existing business or has made a significant amount of money following the sale of a business. Such individuals would normally also have investments (held by private banks), from which they receive passive income, and some real estate (which may be spread over several jurisdictions). They may be in a second marriage or partnership and keen to ensure their current partner’s financial security by shielding them from any forced heirship rules in their jurisdiction of residence.

Tax planning

For individuals looking to relocate as well as tax plan, a special status known as ‘Category 2’ is available. Those wishing to apply for this status must not have been resident in Gibraltar for the five years preceding the application. In addition, they must have a net worth in excess of GBP2 million and rent or have purchased accommodation in Gibraltar for their own exclusive use. A Category 2 individual’s tax liability is limited to the first GBP80,000 of assessable income. At current rates, this would amount to a minimum of GBP22,000 and a maximum of GBP30,000 tax per year. Income that is deemed to accrue and be derived from outside Gibraltar is not taxable.

Trusts

With regard to the holding of assets, the most common vehicle for structuring remains a Gibraltar discretionary trust. The advantages of a trust are that it ensures continuity in how property is held, and provides an effective succession plan after the death of the settlor or successive beneficiaries. While greater care has to be taken to ensure such constructs are viable, there remains considerable scope for sensible trust arrangements that provide real benefits to settlors and their families. Where there are numerous assets, it is common to interpose one or more Gibraltar companies between the trust and asset to provide added insulation and make it easier for the eventual disposal of any one particular asset.

Under the provisions of Gibraltar’s Income Tax Act 2010, income received from a trust will not be taxable in the hands of non-resident beneficiaries, and Category 2 individuals are deemed non-resident for this purpose.

Conclusion

In the current global economy, individuals are looking not only to obtain tax residence or to create structures, but also to establish a centre of economic interest in a stable and efficient jurisdiction that offers a culture of transparency and compliance while safeguarding their assets. Clients are also looking to base the management of assets and investments in a family-office-type arrangement without necessarily relocating all the principals. Gibraltar has established itself as a reputable international finance centre that has moved away from its historical ‘tax haven’ offering. For this reason, relocation options are becoming increasingly popular among clients in Gibraltar, as are family-office services. 

Author block
Right
Emma Azopardi Lejeune and Peter Montegriffo

Emma Azopardi Lejeune is a Senior Associate and Peter Montegriffo TEP is a Partner at Hassans International Law Firm.

The content displayed here is subject to our disclaimer. Read more