Tax Planning

CRS Tax Planning – Pensions, Insurance coverage and Charities – Taxes


Tax Planning According to CRS – Pensions, Insurance, and Charities

December 10, 2020

The sovereign group

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If there was any doubt that any type of planning could be successful if it relied on the obfuscation and did not report correctly, that doubt has completely disappeared with the introduction of the Common Reporting Standard (CRS). It’s not just that CRS has tried to evade the tax by “forgetting” to fail offshore revenue. It has also narrowed the scope for tax avoidance, tax mitigation (or whatever is considered the least offensive word for tax planning). Previously, there may have been a temptation to use structures that would be ineffective if audited by the relevant tax authority, as they would not need to be reported to avoid an audit.

All countries with sophisticated tax systems and therefore equally sophisticated anti-evasion laws tend to give charities, insurance companies and pensions favorable tax treatment. That’s not really a surprise. It’s a form of social engineering. All of these products relieve governments of the burdens that would otherwise fall on them.

It is in the interests of the state to encourage people to give charitable, save their lives and save for their old age.

If the breadwinner of the family fails to secure their lives, the family can become a burden to the state if the breadwinner dies prematurely or safely before he has built up sufficient financial resources to support the family in their absence.

If residents do not save for their retirement, their welfare becomes an additional burden on the state.

So the state encourages people to do all of these things and the main incentive is a tax break. With all of these products, it is possible to use an existing business solution provided by a large company or charity. However, it can be very attractive to look at bespoke solutions that give the promoter more control, more flexibility, and lower costs.


Charities can be a useful tool in family wealth planning. Wealthy families often form their own foundation or charity. A charity is typically a limited liability company or trust that aims to: a) promote education; b) promoting religion; c) promoting health or saving life; c) promoting citizenship or community development; d) Promotion of the arts, culture, heritage or science; or e) the alleviation of poverty.

In general, tax breaks are given on gifts to a charity. The charity itself is tax-free and distributions from the charity to charity can be made with no tax consequences. In other words, a charity is a tax efficient means by which money can be donated, invested, and distributed. Charitable families can set up their own charity that allows them to maintain control of the money, manage it the way they want, and carefully control the way the money is spent and used – as long as it is for charitable causes. This can often be much more attractive than simply giving a large lump sum to an existing charity. The “private” charity can employ family members at market salaries and this is often seen as a much better way to motivate relatives than leaving them money in a will that may prevent them from working or finding their own way in life. Increasingly wealthy patrons see the passing on of huge wealth as a destruction of the recipient’s life and an amoralization.

Life insurance

This is traditionally provided by large insurance companies. The concept is simple. A person gives the insurance company a lump sum or regular payments. The insurance company aggregates all of these insurance premiums, invests them in a pool, and pays out certain policyholders’ share of that pool after death. The policyholder has no control over how the money is invested or the cost of those investments, and the return is often uncertain. The costs can be extremely high and are often heavily disguised. Instead, some companies offer bespoke solutions. These separate the policyholder’s contributions from all others and allow the policyholder or their chosen investment advisor to determine how the money is invested. Such policies can even hold private investments like shares in a family business, real estate, even wine and art. Costs can be carefully controlled, with most commissions minimized or eliminated. These bespoke solutions are becoming increasingly popular. Many are structured within a protected cell company or equivalent so that the same insurance company can offer the same solution to multiple investors without pooling their assets. Assets can be segregated in such a way that if the insurer gets into financial trouble, it does not necessarily affect the investments of a particular policy. Bermuda offers a company registered by Royal Charter that is particularly attractive. There is generally no tax benefit when purchasing life insurance for the first time, but an offshore insurance company can generally invest the money tax-free and often, depending on the jurisdiction in which the policyholder or his beneficiaries live, keep the proceeds of the policy on the death of the policyholder can be obtained tax free.

A good example of where this structure can be particularly tax efficient are UK residents. There is nothing stopping a UK taxpayer from starting an offshore company that can trade globally tax free, but its earnings would generally be attributed to the UK taxpayer on a current year basis. This prevents the taxation of profits from being delayed until they are paid out. In other words, companies outside the UK are treated as partnerships by the HMRC. However, if this company were held by insurance policy tax, it would be deferred indefinitely. Simple innit?


There are many pension providers. They all offer a diverse range of products. In most cases, the pension insurer is responsible for the investment policy. Here, too, charges can be steep and are often not visible. Self-invested personal annuities (SIPPs) are becoming increasingly popular and can reduce costs. Many think they can do a good job investing their own retirement money, but it rarely works well. However, there is no reason why an investment advisor cannot be hired to assist.

Employer or employee contributions to a properly regulated pension system can be made from pre-tax income, up to certain specified limits. The retirement vehicle pays no tax on investment income, but distributions would generally be taxable in the hands of the recipient – again depending on where that recipient was tax resident. Depending on where the pension is based, a tax can also be deducted at the source (WHT). Offshore annuities can have significant benefits as there is usually no withholding tax. This is especially beneficial if the recipient lives in a jurisdiction where the pension is not taxed when it is received and therefore the generally available credit is of no benefit or interest to the WHT.

There are many ways one can use these products to get tax savings in a creative and completely legitimate way. Simple offshore structures are rarely effective these days. These regulated “products” could be the way forward.

The content of this article is intended to provide general guidance on the subject. You should seek advice from a professional about your particular circumstances.


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