A gift for your children: establish a trust to protect their financial future before moving to UK

The new British National Overseas (BNO) visa allows eligible BNO citizens in Hong Kong, as well as their dependents, to live, work and study in the UK. For BNO visa holders moving to the UK with children, making the correct choice when it comes to school will be a high priority because it will play a significant part in ensuring a successful transition to life in the UK.

There are a wide range of different options when it comes to schooling in the UK and each type of school offers different benefits and suits different budgets. Parents should also note that most government-funded schools and some private schools base admission on catchment areas, so it’s often better to choose a school before deciding where to live.

Education is compulsory for children between the ages of five and 16. They then have the option of continuing their studies for a further two years, studying for A-levels, BTEC awards or increasingly the International Baccalaureate (IB), which is recognised internationally.

State schooling is provided by the government at no cost to British citizens and foreigners living legally in the UK. The standard of education can vary significantly, so it is essential to read a school’s Ofsted – Office of Standards in Education ¬– report to find out about the quality of teaching, facilities and achievements.

The UK also has a long tradition of private (independent) schools, which tend to offer a higher standard of teaching and smaller class sizes. The admission criteria will vary between schools and fees are generally high.

In addition to researching schooling options, Hong Kong-based families that currently have an intention to move to the UK can do something else that could be very important to their children’s long term future in the UK. It is essential that any assets situated outside the UK should be transferred into an overseas trust prior to the move to ensure that they remain outside the scope of UK taxation, particularly inheritance tax at 40%.

An overseas trust that is established in a stable and tax neutral jurisdiction will provide these families with:

• Increased security, because their assets will be protected from political concerns;
• Increased confidentiality, because the parties, assets and terms of the trust will not be in the public domain;
• Increased versatility, because the trust can own commercial enterprises, hold insurance policies and cash, open bank accounts, participate in international investments; and
• Increased capital accumulation, because the trust itself should not be subject to tax on its income and capital gains. Sovereign

It is mainly for these reasons that many parents have chosen to establish an overseas trust to protect the long-term financial future of their children.

There are a number of countries that have enacted trust laws but the quality and suitability of the legislation is variable. When selecting the best jurisdiction for establishing a trust it is important that it offers an English common law system, which will be familiar to most Hong Kong citizens, with a strong tradition of enforcing trusts, as well as modern trust legislation and low or no trust taxation.

Sovereign offers a compelling trustee service from a wide range of jurisdictions and a competitive and transparent fee structure enabling us to align with clients’ needs. We work with a number of independent financial advisers as preferred partners in a number of jurisdictions due to the extensive choice of trust domiciles in which we are authorised to operate.

Sovereign is licensed to provide professional trustee services in the following locations:

• Onshore and European Union – Cyprus and Malta
• Mid-shore – Hong Kong, Mauritius and Singapore
• Offshore – Gibraltar, Guernsey and the Isle of Man

For Hong Kong citizens, suitable jurisdictions in which to establish their trust would include Guernsey and the Isle of Man. Both these jurisdictions are self-governing British Crown Dependencies and do not form part of the UK. Importantly Guernsey and the Isle of Man both have an English-based legal system, a well-established judiciary and autonomy in all matters of internal government. Neither jurisdiction imposes any additional layer of tax but they are compliant with international regulatory standards and cooperative and transparent in tax matters, including exchange of information.

When established in, and managed from, a secure and stable legal environment, a trust offers a mechanism for preserving family assets. Trustees will have the flexibility to permit payments to beneficiaries as the need arises and allow for the independent support of those who require it most. They can, for example, be a useful vehicle for people who want to provide for those – infant children, the aged, the sick or disabled – that are unable to manage their own affairs.

The best-laid plans can rapidly become obsolete due to unforeseen events, so another advantage of a trust is that it offers a flexible mechanism for managing assets that can adapt as conditions demand. A trust simply provides more flexibility and confidentiality than other legal forms designed to hold, preserve and transfer wealth.

The establishment costs and ongoing annual fees will generally be marginal in comparison to the value of contributions settled and the raft of major benefits that can be enjoyed by the settlor and their beneficiaries.

Please also read the following related articles:

• The new British National (Overseas) Visa – moving from Hong Kong to the UK
• Thinking about moving to the UK?

Download our UK guides below:

• Doing Business in the UK
• Investing and Residing in the UK
• Hong Kong to UK checklist
  (English) (Traditional Chinese)

For further information and for an initial consultation without obligation, please contact Sovereign Hong Kong.