Investing using a 'Look Through' company

[Snoopy]

Have been evaluating using a Look Through Company to hold my overseas investments. As far as I understand it, you fill in an IR862 form and from then on all the activities of the Look Through Company are sorted out on the personal tax returns of up to five shareholders. So paperwork normally associated with a company is greatly simplified. Using a Look Through Company is tax neutral, except that for FIF fund shares you must use the deemed income or comparative value method when filling in your return, no matter whether your total buy in price was less than $NZ50,000 or not.

The main advantage of a Look Through Company seems to be that you can transfer share ownership within the look through company based in NZ, without going through the hassle of contacting overseas share registries. Anyone out there have first hand experience of managing your share portfolio this way?

SNOOPY

[aspar13]

Hi

'The main advantage of a Look Through Company seems to be that you can transfer share ownership within the look through company based in NZ, without going through the hassle of contacting overseas share registries.'

- Do you mean transferring the share holding of the LTC to new/different shareholders? Why would one do that?

- A Family Trust or LTC may be useful to hold shares long term and passing them on to the children/heirs. Current Trust tax rate is 33% vs the Company tax rate of 28%. However, the Trust has an advantage in distributing the profits.

[Harvey Specter]

Why would anyone want to buy a shareholding in your LTC - I assume you mean transfer internally within the family but still question how often this benefit would be realised.

Why not go for a normal company to get the benefit of the 28% tax rate? You can dividend out if you want to treat the income as taxable at your personal rate.

There are issues with extracting non taxed gains from a company (except on liquidation) unless you have a QC still registered from the good old days.

[Snoopy]

Hi
Snoopy wrote:
'The main advantage of a Look Through Company seems to be that you can transfer share ownership within the look through company based in NZ, without going through the hassle of contacting overseas share registries.'

- Do you mean transferring the share holding of the LTC to new/different shareholders? Why would one do that?


Yes transferring the complete holding to one or more other people.

If you kicked the bucket, you might have to transfer your shares to someone else. Not that I am planning to for a while yet.



- A Family Trust or LTC may be useful to hold shares long term and passing them on to the children/heirs. Current Trust tax rate is 33% vs the Company tax rate of 28%. However, the Trust has an advantage in distributing the profits.


Since a look through company's profits transfer straight through to the individual shareholders tax returns (as I read it), the tax rate should equate to whatever tax rate the Look Through Company shareholder pays. That will probably not be 28% in general (as I read it). Or do you have an alternative view?

SNOOPY

[Snoopy]

Why not go for a normal company to get the benefit of the 28% tax rate? You can dividend out if you want to treat the income as taxable at your personal rate.


Because ultimately when you take income out of the company as a shareholder, you pay the extra tax anyway.



There are issues with extracting non taxed gains from a company (except on liquidation) unless you have a QC still registered from the good old days.


No I don't have any company structure available from the old days. I am talking about current NZ law as it exists in 2014.

The proposed company would not do any trading. Only long term investing. Because all income tax due would flow straight through to the sole shareholder (me) all tax would be paid as it falls due at my personal tax rate. So I do not anticipate any non taxed gains flowing or crossing over from year to year. Unless from your experience you can tell me that I have misread things on the IRD site?

SNOOPY

[Snoopy]

- A Family Trust or LTC may be useful to hold shares long term and passing them on to the children/heirs. Current Trust tax rate is 33% vs the Company tax rate of 28%. However, the Trust has an advantage in distributing the profits.


Yes I appreciate the extra flexibility that a trust would provide, and note the trade off of a slightly higher tax rate. But it also requires more work to set up and run. From what I have read on the IRD website, you only have to fill in one form each year in addition to your personal tax return. Or have I got that wrong?

SNOOPY

[Harvey Specter]

I think you have pretty much everything correct.

It does seem a hassle to go through just to make transfer of your investments on death easy. Lets face it, they will sell them all anyway and enjoy the cruise you should be taking. ;)

[Snoopy]

I think you have pretty much everything correct.

It does seem a hassle to go through just to make transfer of your investments on death easy. Lets face it, they will sell them all anyway and enjoy the cruise you should be taking. ;)


Harvey if you own UK assets in your own name, then inheritance tax is payable on your "total estate" over a threshhold of 325,000pounds. The UK inheritance tax rate is 40% on all assets over and above the threshold of your total assets. Total assets includes the value of your house in New Zealand. The average house price in Auckland IIRC is some $650,000. That means the 325,000 pound allowance could be swallowed up just by your modest New Zealand house. Any assets you had in the UK over and above that would be subject to an asset tax of 40% from UK authorities. However, if the assets are not held in your own name, but in that of a New Zealand company, then your estate is not subject to this tax. That's because the company in New Zealand does not die when you do but transfers over to your beneficiaries.

Another way to avoid this is to blow your UK assets on a world cruise. But sadly if you don't do that and if you don't have a look through company, or some other functionally equivalent structure, your descendents will be manning the oars of a rowboat for their trip around the world.

SNOOPY

[GTM 3442]

Are you sure about this Snoopy ?

I would have thought that given the UK's "Remittance Basis" available for offshore income, that there would be something similar available for assets, based on a combination of domicile and residence.

[Snoopy]

Are you sure about this Snoopy ?

I would have thought that given the UK's "Remittance Basis" available for offshore income, that there would be something similar available for assets, based on a combination of domicile and residence.

From

http://www.hmrc.gov.uk/international/remittance.htm#2

"The remittance basis is not relevant if you are not UK resident"

SNOOPY

[GTM 3442]

Hi Snoopy,

I understand the remittance basis and residency, but I remain curious about the worldwide liability. I should have thought that as a non-resident, then any non-resident assets would be invisible to HMRC.

Happy to know more, but am finding the HMRC website somewhat opaque regarding liability for inheritance tax for non-residents.

[GTM 3442]

Mornin' again Snoopy.

I'm happy that I have sorted my situation. May yours be as simple.


http://www.hmrc.gov.uk/cto/customerguide/page20.htm


"Which assets are taxable in the UK?
Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are sited.
If you are domiciled abroad, inheritance tax applies only to your UK assets. However, if you are domiciled abroad there is no charge on excluded assets and we may remove certain other types of UK assets from the tax charge. For more information on excluded property see 'What is excluded property?' "

[peat]

hows that definition of domiciled tho!?

[GTM 3442]

hows that definition of domiciled tho!?

"Domiciled". One of those slippery words so beloved of taxmen the world over.

[Snoopy]

Mornin' again Snoopy.

I'm happy that I have sorted my situation. May yours be as simple.


http://www.hmrc.gov.uk/cto/customerguide/page20.htm


"Which assets are taxable in the UK?
Generally, if you are domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to your assets wherever they are sited.
If you are domiciled abroad, inheritance tax applies only to your UK assets. However, if you are domiciled abroad there is no charge on excluded assets and we may remove certain other types of UK assets from the tax charge. For more information on excluded property see 'What is excluded property?' "

GTM, The UK government can only tax your UK assets for inheritance tax because they have no jurisdiction over other assets. However, for the threshold of death duty, the UK government use worldwide assets in assessing that. This is not information I have obtained from the hmrc website. It was information served up to me by lawyers in the city (London). They were quite a well respected firm, so I assume they knew what they were talking about.

With reference to excluded property, UK government bonds fall into this category. However, since the UK government bond interest rates are incredibly low, it would be a silly strategy just to invest in those for the sole purpose of avoiding UK death duty.

SNOOPY