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Where there are multiple shareholders in an offshore company

Using an offshore company owned by a large number of individuals can be an attractive CGT planning technique.

One of the problems with using an offshore company for CGT planning is the anti avoidance rule that can tax UK residents on gains that the offshore company makes. So if the offshore company sells an investment and makes a capital gain of £100,000, this would be allocated to the UK shareholders and taxed as their capital gain (ie declared in their tax return).

However, this anti avoidance rule doesn’t apply to a shareholder that owns less than 10% of the shares.

This means you could potentially structure the ownership of an offshore company to avoid or at least substantially reduce any CGT.

For instance:

  • You could have 11 shareholders each owning less than 10% of the shares in the offshore company. The company could then hold investments and sell them free of UK CGT. The proceeds could be held tax free in the offshore company.
  • You could have just UK residents each owning less than 10% with overseas friends or family members owning the majority of the shares. Providing the UK residents own less than 10% they wouldn’t be taxed on the gains. The non residents wouldn’t be taxed on the gains as the anti avoidance rules don’t apply to them.
  • Same as above but you could have UK resident, non doms rather than non residents. Providing the non doms claim the remittance basis they could avoid CGT on their share by retaining the proceeds overseas.
  • You could hold the shares with individuals with no other income or gains holding more than 10% of the shares. They would then be entitled to offset the annual CGT exemption and would only be taxed at 18% on gains within their basic rate band.

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