We are not able to advise on matters of UK law, but commentary suggests that such individuals will not pay UK tax on the income and gains of foreign trusts as they arise, or on trust distributions, during the four-year period – afterwards tax will be payable but it may be possible to restructure trusts to limit the exposure of the settlor to, at least, income in the trust. The UK Government have also confirmed that “the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK [inheritance tax] regime” – suggesting that non-UK assets held in such trusts (if established before 6 April 2025; we understand that the position thereafter is less clear) may remain sheltered from a tax of 40% on death. Affected individuals should seek UK tax advice, but there may be a significant incentive for non-doms with substantial worldwide assets to establish overseas trusts before 6 April 2025 as part of their inheritance tax planning.
For those individuals looking to establish an overseas trust, Bermuda has a highly attractive offering. As a British Overseas Territory with one of the highest per capita incomes worldwide, Bermuda is one of the longest established and most respected worldwide business centres, offering a world-leading advisory and financial services infrastructure. In the vast majority of situations Bermuda offers a zero-tax environment.
Trust law in Bermuda is based on the English model. However, Bermuda’s trust practitioners, often in conjunction with eminent English barristers, have advised its government on enacting a suite of world-leading trust legislation. Bermuda was the first jurisdiction to permit purpose trusts to be established. It was also one of the first jurisdictions to disapply the rule against perpetuities, meaning that family trusts in Bermuda (unlike those in England) can (generally) endure indefinitely. Bermuda law also contains provisions protecting Bermuda trusts from foreign law attacks based on overseas forced heirship laws, bankruptcy/insolvency provisions or divorce laws, offering asset protection opportunities. Bermuda statute clarifies that a wide variety of powers over trusts can be reserved by settlors or granted to third parties without causing trust assets to form part of the settlor’s estate, invalidating the trust or rendering the power-holder a trustee.
A star of Bermuda’s trust offering, section 47 of the Trustee Act 1975 permits the Bermuda court to confer on trustees’ power to effect “expedient” transactions which they would not otherwise have the power to effect, (among other things) permitting Bermuda courts to sanction the variation of beneficial interests. Section 47 and the wealth of case law on its application provide enormous flexibility for trusts to be re-structured in circumstances where that would not be possible elsewhere. The Bermuda judiciary is highly experienced in these applications, which can, in appropriate cases, proceed without beneficiary consent (such consent often having adverse onshore tax consequences).
By way of illustration of the nimble nature of the Bermuda trust offering, when ‘the rule in Hastings Bass’ was overturned in England (to the dismay of many trusts practitioners there), Bermuda acted quickly to enshrine a similar rule in legislation – this gave the Bermuda courts discretion to set aside certain mistakes made by trustees, including in circumstances where they make decisions in ignorance of negative onshore tax implications- actions implementing such decisions can be unwound (in appropriate circumstances) as if they never happened.
Bermuda trusts benefit from the vast number of highly-educated and experienced lawyers, accountants and trust administrators based in the jurisdiction, many of whom were educated, trained, or previously practiced in the major onshore jurisdictions, and are frequently world-leading experts in their fields. All the major accountancy firms have a substantial presence on Bermuda. Bermuda also has an efficient judicial system, with a judiciary highly experienced in trust and commercial matters. Ultimate appeal from the Bermuda courts is to the revered Privy Council in London.
Further, Bermuda has an established regime for the operation of private trust companies and is an attractive jurisdiction in which to base a family office, bearing in mind its exceptionally high quality of life, tax neutrality (in the vast majority of circumstances), and direct flights to major financial centers. Bermuda’s professional trustees are highly experienced in complex international structures, have excellent relationships with the premier onshore advisors, and are diligently and pragmatically regulated by the Bermuda Monetary Authority.
Bermuda law respects freedom of testamentary disposition – there are no local forced heirship rules. It does not currently maintain a trust register, has sensible, internationally accepted regulations on money laundering and terrorist financing, and is ‘white listed’ by the EU.
Overall, Bermuda, a major financial centre with innovative trusts legislation, world-class advisors and an efficient court system, is a world-class jurisdiction in which to establish a trust structure in light of the changing tax landscape in the UK, and similar developments worldwide.
Appleby advises on all aspects of family trusts and wealth planning. Its lawyers are experts in the establishment, re-structuring and amendment of Bermuda trusts, and are highly experienced in working with onshore tax advisers to ensure that such trusts are framed in terms which optimize onshore tax planning. Appleby Global Services provides a range of discretionary trust based services to international families and can integrate this service with their corporate and fund capability. Please reach out if you would like to discuss these matters with one of our team. Please note that this article should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer regarding their individual circumstances.
