Creation of a New Endowment Vehicle

By Juan Ramirez,2014-07-09 21:04
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Creation of a New Endowment Vehicle ...

    Creation of a New Endowment Vehicle

    1. Growth in wealth in Ireland

     Ireland has become extremely wealthy in a very short space of time. Bank of Ireland Private

    Banking’s (BOIPB) detailed research in the area entitled “The Wealth of the Nation” has shown

    a growth in net household assets to ?680 billion at the end of 2005. BOIPB estimates that net

    assets will grow to circa ?864 billion by 2010 and ?1,222 billion by 2015 (see appendix 1)

    BOIPB has estimated that the top 1% of the population controls circa 20% of the wealth in the


    Given the rapid growth of wealth, the bulk of this money is first generational in nature and thus

    the issues of wealth transfer have yet to be faced.

    2. Capital Acquisitions Tax-take minimal

     The current tax take from Capital Acquisitions Tax is extremely low. In 2004 according to

    government returns Capital Acquisitions Tax at ?200m million represented a mere 0.48% of the

    overall tax take of ?42 billion, 90% of this ?200m related to Inheritance Tax.

     Historically over the last 6 years the total Capital Acquisitions Tax figure has fluctuated

    between ?150 million and ?223 million. (appendix 2)

3. Risk of Capital Flight

    A considerable risk exists that an unfavourable tax or planning regime could cause capital to

    flee the country and migrate to more tax favourable jurisdictions. There is already evidence

    from the US that the elderly may be drawn to states and jurisdictions with favourable fiscal

    regimes with the considerable gains in Income Taxes from the elderly in Florida - being

    attributed to its favourable Estate, Gift and Inheritance Tax regimes.

    4. Lack of Philanthropic culture in Ireland.

    Despite a deserved reputation of generosity Ireland has not yet created a philanthropic culture

    or environment. Although charitable giving remains high research from The Ireland Funds has

    highlighted that there is still an absence of longer term planned philanthropic giving.

    In addition it has become clear from international donors that they are looking increasingly

    askance at Irelands growing wealth and wondering why charitable or philanthropic projects are

    not being funded locally.

H31MMC08/2006/mc Classification: RED

    - 2 -

    While it is not unreasonable, given the more recent nature of wealth accumulation, that this

    philanthropic culture is taking time to develop it is clear that:

    (a) an acceleration in philanthropic giving is desirable and

    (b) the needs of the educational, medical or traditional charitable sectors in the next ten years

    will expand exponentially

    5. Long-term family vehicles required

    While there is no doubt that the creation of a philanthropic environment is desirable it is

    unrealistic to expect that individuals will accelerate their donations in this area in advance of

    sorting out their own domestic family situations. At present a limited number of vehicles exist

    for maintaining wealth in families none of which is structured to fully meet modern day

    demands and most of which have tax consequences whose purpose appears to be to actively

    discourage their creation.

    The vehicles currently used include:

    (a) Discretionary trusts which have the potential negatives of double taxation charges and

    Discretionary Trust taxes

    (b) Company structures which although benefiting from low Corporation tax rates expose

    beneficiaries to a double taxation charge on the distribution of dividends.

    (c) Wills and settlements where the Inheritance Tax often results in families being forced to

    sell the company or other assets to fund this specific taxation liability.

6. Possible solution

     It is our belief that a potential solution exists which would;

     (a) accelerate the tax take for the Government

    (b) help to retain wealth within the country

    (c) enable families to transfer wealth to the next generation in an orderly fashion

    (d) accelerate the creation of philanthropic environment.

    7. Creation of a new Endowment Vehicle

     It is proposed that consideration be given to the creation of a new Endowment Vehicle (EV):

    H31MMC08/2006/mc Classification: RED

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     (a) this endowment vehicle would be a corporate legal entity which would have a defined list

    of shareholders/beneficiaries.

    (b) From the date of its creation this EV would have a fixed life for say 24 years after which it

    would transfer all assets to the list of beneficiaries or transfer them to a new EV.

    (c) The EV would operate as a gross roll up fund and would not be subject to tax on income

    or gains earned but the beneficiaries would be taxable at 20/23% on all distributions.

    (d) It is accepted that there would be a capital tax charge on the gross value of assets

    contributed into the EV. The level of this charge however needs to be carefully assessed.

    (e) A tax credit regime would be created which allowed the charge arising at (d) above to be

    offset against amounts contributed to approved government charities, or to bespoke

    charitable foundations.

    The nature of this offset needs to be determined and depending on the charge at (d)

    above could be offset against marginal income tax rates or fully against the capital charge

    arising at (d) above.

    (f) Ownership of the EV would be structured in one of two ways

     (1) absolute ownership by the beneficiaries

    (2) a discretionary trust structure but

    (a) with significant additional restrictions such that the beneficiaries are pre-

    defined and the life of the trust is tied to the life of the EV i.e., 24 years and,

    (b) with special tax status to avoid double taxation and discretionary trust tax.

(8) Considerable Appeal

    It is acknowledged that these structures will not appeal to all individuals but will be welcomed by those

    who wish to pass on assets in an orderly manner to the next generation whilst also furthering their own

    philanthropic goals.

    From the governments viewpoint there should be an acceleration of the tax take, a retention of capital

    within the Irish fiscal regime and the encouragement of philanthropic environment whose aims are likely

    to be closely aligned with those of the state.


H31MMC08/2006/mc Classification: RED

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