1. UK TAXATION OF ISLE OF MAN FOUNDATIONS Phillip Dearden PKF (Isle of Man) LLC Palace Hotel 18 January 2011

2. 16 June 2003 An introduction to PKF 11 th January 2011 Introduction No specific legislation for Foundations Foundation has some characterisics of Trust Property donated and dedicated –Vests in Trustees or Foundation Beneficiaries with rights or expectations Controlling parties subject to Fiduciary duties Company Separate legal personality Liability limited to value of fund Unlimited duration Could be treated as either as context permits Need to look at anti-avoidance provisions Assess appropriateness Case-by-case basis

3. 16 June 2003 An introduction to PKF 11 th January 2011 Introduction Identify taxable events Consider Taxation Inheritance Tax Founder Foundation Capital Gains Tax Founder Beneficiaries Income Tax Founder Beneficiaries Examples

4. 16 June 2003 An introduction to PKF 11 th January 2011 Isle of Man Foundations Foundation Council + Registered Agent Beneficiaries Founder + Dedicator Foundation Instrument Objects and Rules Possible Enforcer IncomeCapital Profits

5. 16 June 2003 An introduction to PKF 11 th January 2011 Key Characteristics Founder Like a settlor? Is he a Participator? Depends on rights Beneficiaries Purpose to benefit specific purpose Possibly philanthropic Council Like a Board of Directors Guardian/Enforcer Like a Protector

6. 16 June 2003 An introduction to PKF 11 th January 2011 Trusts and Companies Trust/Settlement for IHT? S43 IHTA 1984 Settlement for IHT Act “means any disposition...held in trust....” Not definite but possible Trust for s86? Narrow definition Foundation probably not a trust for s86 Trust for s87? Wider definition s97(7) Probably a trust If there is “bounty” Close company for s13 and IHT? Probably a company/body corporate Is it “Close” Who are Participators? Not loan creditors re IHT!

7. 16 June 2003 An introduction to PKF 11 th January 2011 Inheritance Tax No specific mention in Legislation Funding of the Foundation Chargeable transfer Nature of recipient not relevant Possible Excluded Property No IHT Watch UK assets 10 Year Events Distributions Exit charges Gift with Reservation (GWR)

8. 16 June 2003 An introduction to PKF 11 th January 2011 Capital Gains Tax Foundation disposals Probably no tax for Foundation itself Attribute to settlor (s86 TCGA) Narrower definition of trust Should be avoidable !!! Only relevant where Founder/Settlor UK resident Attribute to beneficiaries (s87 TCGA) Wider definition of trust Possible tax on distribution Attribute to Participators (s13 TCGA) Probably a company for s13 Is there a UK Participator?

9. 16 June 2003 An introduction to PKF 11 th January 2011 Income Tax UK source income Possible charge for trustees Founder Attribution (s624/720) Arising basis Only if settlor UK resident Beneficiary Attribution (s731) Only when benefits provided

10. 16 June 2003 An introduction to PKF 11 th January 2011 Isle of Man Foundations - Taxation Foundation Council + Registered Agent Beneficiaries Founder + Dedicator Foundation Instrument Objects and Rules Possible Enforcer IncomeCapital Profits S13 TCGA Attribution to Participator S86 TCGA Attribution to Settlor/Founder (Arising) S87 Attribution to Beneficiary (On Receipt) S94 Attribution of “gifts” to Participator in Close Company S65 IHTA 10 Year charges S720/s624 Attribution to Founder S731 Attribution to Beneficiaries (On Receipt)

11. 16 June 2003 An introduction to PKF 11 th January 2011 Example Scenario 1 Founder non-resident and non-domiciled Settled non-UK funds Beneficiaries now in UK eg children No tax on creation IHT Excluded Property Income and Gains No tax as profits rise Possible Accumulations S87 capital gains S731 Relevant Income

12. 16 June 2003 An introduction to PKF 11 th January 2011 Example Scenario 2 Founder UK-resident and UK-domiciled Settled funds Beneficiaries also in UK eg children Possible IHT on creation IHT 10 year charges Income and Gains Possible tax on settlor As profits arise If not trust for s86 Possible CGT shelter? Also watch s13 and Participator charge

13. 16 June 2003 An introduction to PKF 11 th January 2011 Introduction Overview Identify taxable events Inheritance Tax Capital Gains Tax Income Tax

14. UK TAXATION OF ISLE OF MAN FOUNDATIONS Phillip Dearden PKF (Isle of Man) LLC Palace Hotel 18 January 2011