T ax planning opportunities offshore are very hard to find for UK resident and domiciled individuals who do not want to divest themselves of, nor cease to benefit from, their assets. In these difficult economic times there are still, however, people for whom holding assets offshore in certain circumstances can be beneficial. And there are reasons other than tax that might make using an offshore structure attractive.

It has been a traumatic period for the UK economy and for this and other economies in Europe there is still some way to go. But in the UK is there now a glimmer of hope for the future? While some are talking about the possibility of a double dip recession, is there any comfort to be gleaned from the new government, which seems stronger and more coherent than might have been the case, and from a quickly but convincingly delivered emergency budget? Will the measures introduced by the coalition produce the recovery needed? And at what cost to the taxpayer?

For many the emergency budget measures may not be welcome, but how does the economy look for those working in wealth management and the trust industry in the UK?

While for private individuals the highest rate of income tax of 50 per cent does not have effect until a significant level of income has been earned (some GBP156,475), for trustees it applies from the outset (with a lower rate of 42.5 per cent being applied to dividends). Measures in the emergency budget will ensure that settlors will not be able to benefit from the disparity in starting levels of the 50 per cent charge.

Is it likely the non-domicile tax regime will face another major overhaul?

Since 23 June 2010 the rate of capital gains tax is 28 per cent and while many are focused on the headline rate and consider this not very punitive, it should be remembered that in calculating the gain to which the rate is applied no relief is given for indexation or any inflationary increase in the base cost. This method of calculation is highly detrimental where assets have been held for a considerable length of time.

While no immediate changes were introduced in respect of UK resident non-domiciles it was confirmed that further measures would be considered (and a consultation document?). While this heralds a period of stability in the tax affairs of UK resident non-domiciles, for those working with and for UK resident non-domiciles, it is recognised that the existing system introduced by the 2008 Finance Act is far from clear and certainly is not simple. While the Remittance Basis Charge is not substantial, and has not led to the mass exodus that was envisaged, it has not produced the tax take that the government hoped, but in the meantime significant extra work has become necessary to deal with the complexities of the non-dom regime. In view of this, is it likely the non-domicile tax regime will face another major overhaul?

Given the position outlined above, what can Guernsey and Jersey offer to improve the situation? There are real benefits to be gained from holding and locating assets there.

For a start, unless a trust is looked through for income tax purposes there are still cash flow incentives in the receiving and accumulation of income gross. Similarly, the ability to realise capital gains without an immediate charge to capital gains tax is compelling (and with the maximum supplementary charge producing a total charge of 44.8 per cent this is still less than the maximum income tax rate).

Moreover, for those lucky enough to have a trust offshore already, the Finance Bill has stated that where capital payments, subject to s87 Taxation of Chargeable Gains Act (TCGA) 1992, were made before 23 June 2010 these will be treated as matched to gains realised not just before 23 June but up to 5 April 2011 and will be liable at the 18 per cent rate (plus supplementary charge if relevant).

In a surprising and seemingly generous gesture for settlor interested trusts, section 21 of Schedule 1 of the Bill states that chargeable gains realised throughout the whole of 2010/11 will be treated as accruing to settlors, under s86 TCGA 1992, before 23 June 2010. So whether gains were/are realised before or after 23 June 2010, provided they are realised before 6 April 2011 they will still cause a charge to 18 per cent only. This could mean that it is more beneficial to realise assets in an offshore trust between 22 June 2010 and 5 April 2011 than it is in one’s personal name. There will be limited opportunities to structure a settlor’s affairs to make best use of this, however, if the assets are not already in trust.

With VAT rising to 20 per cent from 4 January 2011 the lack of this extra cost in charges for professional fees raised in the Channel Islands makes the administration of assets and structures potentially more competitive. While a VAT equivalent applies in Jersey (GST) this is not applied to fiduciary or asset management charges, nor to the associated professional fees, such as accounting and tax services and where it does apply is currently at a much lower rate of 3 per cent.

The new UK government has not made any cheerful noises about pensions and it appears that while the measures announced before the election will not be reversed there may be alterations made to some of the proposed actions. These will not restore reliefs for contributions nor significantly improve the pension saving powers of yester year. Inevitably this has caused individuals to look elsewhere to bolster their saving for the future. For those leaving or who have left the UK, transferring a UK pension into a Guernsey Qualifying Recognised Overseas Pensions (QROPS) can ensure that drawings made from the pension are not subject to UK income tax.

For those clients who are not living abroad and who do not propose to leave, much attention has been focused on the use of Employer Financed Retirement Benefit Schemes (EFRBS) as there is no restriction on the contributions that are made to these. The Finance Bill singled EFRBS out for review and it is possible that the window of opportunity for planning using these may soon be shut.

Despite the restrictions placed on the corporation tax relief allowable when creating Employee Benefit Trusts (EBTs), these are still popular, and momentum is building in the use of these to reward staff of UK companies. During the last few years, the creation of new EBTs was limited as companies kept their belts tight and waited to see what would happen.

Of course, a wealthy client can do more than just move their assets to the Channel Islands. They could consider moving to the Islands to benefit from the lower levels of personal income tax (20 per cent in both islands with a possibility of capping the tax available). Leaving the UK is not a decision to be taken without conviction. While HMRC6 may be light in detail and far from comprehensive when setting out the parameters required to establish non-residence, subsequent tax cases have helped to highlight the expectations of HMRC. It is necessary to demonstrate a clean break has been made with the UK, which, based on the case of Mr Gaines-Cooper, would be helped by bringing spouses and children out of the UK. For those moving to the Islands for full-time employment the ‘clean break’ is not necessary.

There are many non-tax reasons for using Guernsey or Jersey in tax planning. Amongst these is political and economic stability, a well established and regulated finance industry and a plethora of expertise in matters relating to offshore planning. If a double dip recession is to hit the UK, having assets in a properly constructed offshore vehicle in a well-regulated offshore location may be reassuring.

There are also structures offered that are not geared to tax planning. Of course, a trust can be used for a number of purposes. Protection of assets and planning for devolution of assets in a family or group are just two non-tax reasons.

If mitigation of UK tax is not a driver for creating a structure, the Jersey foundation has already proved to be popular, with the number of incorporations of these structures being pleasing. Foundations are particularly useful where there is a desire to hold an asset at arm’s length, but no one has, or needs, to have a beneficial interest in the income produced or the asset itself. The governing body of the foundation is governed according to the charter.

So whether or not tax mitigation is a factor, holding assets in or indeed relocating to the Channel Islands may prove a welcome safe haven in the economic storm that may or may not be simply passing through.