Sometimes it is good to use offshore companies

Sometimes it makes sense to use an offshore registered company to carry out UK trading and investment activities.Even though such a company is likely to end up being subject to UK corporation tax this does not stop it being a non-UK asset for the purposes of UK inheritance tax.

Inheritance Tax Recap (Recap 1)

  • Individuals are generally subject to UK IHT on any UK situs assets that they own on death – irrespective of domicile position.

Non-UK Domiciled Recap (Recap 2)

  • UK resident, non-domiciled individuals can receive dividends from non-UK tax resident companies on which they only pay tax on a remittance basis (but they may have to pay a remittance basis charge).

Commentary

Using offshore companies to carry out UK trading and investment activities will prevent the companies comprising UK assets in Recap 1 and potentially mitigate IHT.

There is, however, a common misconception that using an offshore company will mean that any dividends which are paid from it will have a non-UK source. This is incorrect. Dividends will only have a non-UK source in cases where the company is not UK tax resident. This will usually be the case where it can be shown that central management and control takes place outside the UK. In cases where this is viable there may therefore also be income tax advantages.

The take home message is that it is not always appropriate from a tax perspective to use UK registered companies to undertake commercial activities based in the UK.

 

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