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How to help clients with international tax planning

How to help clients with international tax planning

Investing through international providers has grown in popularity over recent years as investors seek out the benefits of gross roll-up and the wider range of investment options that can be available.

When considering a recommendation for a lump sum investment, not only does the adviser have to select a suitable tax wrapper and help create a suitable portfolio, but they must also decide whether to invest through a UK provider or through a provider based in another jurisdiction.

If the latter is right for the investor then there is another decision; which jurisdiction to use and there is a whole world from which to choose.

Many investors will want to use providers based in countries they are familiar with and not in countries that are located on the far side of the world. In these days of transparency and information sharing agreements, the jurisdiction should also be seen as reputable.

Nations that maintain a high degree of confidentiality can often be seen as suspicious and this may deter investors. Think of those companies and individuals who invested through Panama and whose names were leaked to the press. I am not sure the publicity was welcomed.

For these reasons, many UK resident investors and advisers will select providers based on the Isle of Man or in the Republic of Ireland. These countries are geographically close to the UK and have developed into global financial centres over a number of years.

Their governments have passed legislation that makes them attractive destinations for investors from other countries, including the UK, and financial services has become a key part of their economies.

From a common-sense perspective, providers based in these countries will have similar working hours to the UK, making working with them easier. They will also speak English, again making them easier to work with.

Luxembourg is another international financial centre that can claim to meet these requirements; however, it is not as popular and this is likely to be because many UK insurance companies and investment companies have chosen to use Ireland or the Isle of Man as their non-UK base.

The investor’s objectives have to be taken into account and this could affect the choice of jurisdiction. For example, if they plan to move abroad in the future, the choice of jurisdiction could be linked to their exit strategy. 

If a UK resident invested through an Irish provider and then moved to Ireland, they could find themselves with an unexpected tax bill.

So if you are looking at an investment with a provider based either on the Isle of Man or in Ireland, what are the common factors that you need to consider?

Government and the European Union

The Isle of Man is a crown dependency and part of the British Commonwealth. It is an independent country and not part of the United Kingdom or the European Union. However, it is an affiliated member of the European Economic Area (EEA), generally following the EEA guidelines.