Ten years ago, Jim, a Malaysian, purchased an apartment in central London for £500,000 because his two children were studying there. During that time he was advised to write a will in U.K. because it would be more expedient to have a U.K. will covering the assets there. His U.K. will specifies that he will give his property and money in his London bank accounts to his wife solely upon his demise. However, if common disaster occurs where his wife also passes away then these assets will be given to his two children equally who are now in their early thirties. Similarly, he had also written a will in Malaysia covering assets in Malaysia. The Executors/Trustees for both the wills are his wife first, followed by his children. One year ago, he passed away and his wife applied for the Grant of Probate in Malaysia and in the UK using the wills from the respective countries. Upon obtaining the U.K. Probate, she discovered that she has to pay inheritance tax of 40% on anything above the threshold of £325,000 for the property and monies in the bank account in U.K. At that point of Jim’s death, the value of the property had appreciated to £800,000 and his bank account had a balance of £200,000 totalling one million. So, very simply calculated, Jim’s wife had to pay 40% tax on £675,000, which amounts to £270,000. In Malaysia, since estate duty has been abolished, his wife need not pay tax on the inheritance but she would have to settle Jim’s personal income tax if there are any outstanding tax amount from his estate.
One of the ways to overcome paying estate duty is to form an Offshore Company to hold the property and the bank account in London. With an Offshore Company, Jim could have avoided paying estate duties, inheritance tax and capital gains tax when he passed away. The property held in most offshore companies could be sold by just transferring its shares without paying any stamp duty. This kind of Company is usually incorporated in a tax haven jurisdiction like the British Virgin Islands (“BVI”), a British overseas protected territory in the Caribbean. There are more than 900,000 incorporations to date. To form an Offshore Company, you only need to have one Director and one Shareholder who could be an individual or a corporate entity. The details of Directors and shareholders are not on any public records so they provide high confidentiality in terms of ownership and control. They are not required to hold meetings but if they do, then it can be held anywhere in the world. The Directors may grant special and general powers of attorney to any person to manage the company’s assets. The name of the company can also be in Chinese. There is no authorized capital required. Bearer shares are allowed but it must be held by an approved custodian. Lastly, there is no requirement to file in annual returns, audited accounts and tax returns. This makes the administration of the company relatively simple as compared to the requirements required for a Sdn Bhd. Hence, for ownership of foreign assets, it would be important to use an offshore company instead of owning it in the individual name for purposes of wealth succession and tax minimization.
Peter Lee is an Associate Estate Planning Practitioner (Wills & Trust) with Rockwills International Group. He is also an Islamic Estate Planner providing Wills & Trust services for Muslims. He is based in Ipoh and can be reached at: 012-5078825/ 05-2554853 or email@example.com. Website: http://www.wills-trust.com.my.