Tsunami hits trusts and ripples reach Israel
JUST TWO months ago, HM Treasury announced new rules affecting offshore family trusts. That legislation came into effect last week with a deadline for implementation on April 5, 2018. This means those affected have just over four months to rethink and restructure their family finances. The tsunami of this new legislation is likely to affect not only offshore trusts with UK-resident settlors or beneficiaries but also family trusts with beneficiaries living in Israel. That is why we are particularly keen to bring this to the attention of Jewish families who may have offshore trusts that benefit relatives living in Israel and to help you restructure the trusts with their interests in mind.
It is important that families with offshore trusts take advantage of the opportunity to restructure such trusts before April 5, 2018. Failing to do so may expose the UK-resident family members to a more onerous tax regime. There is a very small window of time during which the trustees of offshore trusts with both UK resident and non-resident beneficiaries should consider making distributions to non-residents in order to “wash out” stockpiled capital gains.
If the trust has Israeli-resident ben- eficiaries, the date of their move to Israel may be relevant, as this is now a factor for both UK tax and Israeli tax rules. For example, there are special terms in the new UK legislation applying to settlors or beneficiaries who became non-domiciled within the past five years and special considerations may apply in Israel to those who made aliyah within the past 10 years.
Since 2007, new olim have enjoyed a 10-year exemption on capital gains tax. If your trust beneficiaries in Israel are still within this 10-year grace period, there may be a last-chance opportunity to restructure the trust in a tax advantageous manner for the entire family.
We have hosted a number of seminars on this issue in conjunction with senior tax lawyers from Withers LLP. They addressed not only the new UK and Israeli tax laws relating to trusts but also fielded a discussion of the wider issues facing trustees and beneficiaries in a world of enhanced regulatory compliance. What became clear from our conversations was the importance of considering the issue from all angles. It could be extremely prejudicial for British tax lawyers or accountants to advise their clients on the restructuring of an offshore family trusts without considering the implications for beneficiaries and settlors who live in or intend to move to Israel.
For example, since 2014, any overseas trust with one or more Israeli beneficiaries is subject to tax and reporting in Israel but it may be regarded as an Israeli resident trust, a foreign resident trust, an Israeli resident beneficiary trust, a foreign resident beneficiary trust, or a testamentary trust — and each has different tax implications and potentially expensive consequences.
We recommend trustees and professionals who are considering restructuring options should take advice from people who are up-to-date with the complexities of all the various relevant tax regimes governing each of the individuals touched by the trust.
It is important to consider the definitions of “tainted” trusts and the UK criteria concerning domiciles and non-domiciles. If your family trust, or that of your clients, has any nexus with Israel, this should be taken into consideration, particularly if either the settlor or beneficiaries is considering moving to Israel in the future, or even spending more than a few months each year there, which may cause them to be considered as resident for tax purposes.
There are many questions to be asked and the answers may not be straightforward. With the clock ticking toward the April 2018 deadline, it is crucial to plan ahead to protect your offshore trust from the incoming waves of legislation.
The clock is ticking toward the April 2018 deadline’
Philip Braude is CEO of Braude Wealth, pbraude@anglocapital.com