Setting up a New Zealand Trust

Family trusts are quite common in New Zealand as a way of holding assets on behalf of families.

Trusts can offer a range of advantages including:

1. Protection from means and asset testing (especially for rest home fees)

2. Asset protection (for example protecting your personal assets from business creditors and family disputes)

3. Tax (trusts are taxed at a lower rate than higher rate tax payers)

4. Estate/Succession Planning (a trust allows you to have more control and confidentiality than a will in who your assets go to when you die, and may also allow you to protect assets from challenges under New Zealand's fairly liberal Property Relationships Act)

New Zealand operates complex trust tax laws, which centre on the residence of the trust settlor and beneficiaries. There are three tax classifications of trusts (complying trusts, foreign trusts, non-complying trusts) with different tax rates and treatments applying to each.

New Zealand operates a gift duty regime which applies to gifts that exceed NZ$27,000 in combined value per year. This applies to gifts made by persons living in New Zealand, and gifts of property situated in New Zealand by non-residents.

To avoid gift duty charges on assets being settled into trusts, most assets settled on trusts in New Zealand are sold to the trust on a "debt back" basis - $27,000 of the gift is forgiven every year. It is possible for a husband and wide to combine their gift duty allowances to speed up the process, but even a modest family home settled into a trust can take a number of years to complete the gifting process.

Pre-Migration Trusts 

If you have UK assets that you wish to hold in the long term, you can settle them into a New Zealand foreign trust before you emigrate. The entire value of the assets in the trust can then be settled without being subject to the gift duty regime -

1. as long as the assets are not based in New Zealand

2. as long as you have not previously lived in New Zealand (this is one of the few instances where New Zealand tax domicile comes into play.)

You can then convert your trust into a complying trust once you have arrived.

Setting up a New Zealand trust may also work in your favour if you intend to hold assets in the UK in the long term and do not wish them to become subject to UK Inheritance Tax.

Great care must however be taken when setting up an offshore trust from the UK to ensure that you do not trigger any UK tax charges - particularly if the amount you are placing in the trust exceeds the nil-rate band for UK Inheritance Tax. There are other types of asset holding vehicle which may also be helpful such as a New Zealand Limited Partnership which may not trigger the UK tax charges applicable to trusts. We strongly suggest that you take advice from experts who are familiar with both UK and New Zealand trusts and tax if you intend to set up a pre-migration trust, as offshore trusts are a specialised area of both tax and trust law.

New Zealand trusts offer a number of advantages, but they can be complicated to understand and there are ongoing compliance and administration costs. Please see the article on Setting up New Zealand Trusts in our Legal Guide to Life in New Zealand for more information.

This article was compiled with assistance from UK-NZ tax expert Martin Riley from Sterling Tax Services and offshore trust specialist Henry Brandts-Giesen from Helmores Barristers and Solicitors. They're great people to talk to if you are thinking of using a trust for UK and/or NZ tax planning.

Broadbase International will work with you every step of the way to help you make a confident start to your new life in New Zealand. Please contact us if you have any questions about the financial side of life in New Zealand, and don't forget to order your free copy of our comprehensive New Zealand Guide.