Everything you need to know about moving to NZ

Trusts, especially family trusts, are quite common in New Zealand.

They offer four main advantages:

1. Protection from means and asset testing (especially for rest home fees)
2. Asset protection (for example protecting your personal assets from business creditors)
3. Tax (trusts are taxed at a lower rate than higher rate tax payers)
4. Asset succession (a trust allows you to have more control and confidentiality than a will in who your assets go to when you die, and also allows 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. 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. Even a modest family home settled into a trust can take a number of years to complete this 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.

We strongly suggest that you take expert advice if you intend to set up a pre-migration trust, as offshore trusts are a specialised area of both tax and trust law.

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.

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 for more information.

This article was compiled with assistance from Martin Riley from Sterling Tax Services and Jonathan Cron & Kevin Scott from New Zealand Trustee Services. We suggest that you contact them if you are thinking of using a trust for UK and/or NZ tax planning.