Offshore Planning for UHNWs using Corporate Family Investment

Offshore Planning for UHNWs using Corporate Family Investment Structures A case study Guernsey STEP Rosalyn Breedy Camilla Wallace Edward Craft Wedlake Bell LLP 15 October 2015 #10595143

Case Study This presentation is based around a specific case study. The members of a family comprising second and third generation UK resident and non-UK resident, UK and foreign domiciled individuals are shortly to receive a substantial increase in their personal wealth as a result of value realisation upon the sale of the family company for hundreds of millions. The family company is an private limited company incorporated in England Wales and operating within the UK. It is the parent company of a group. Our presentation will cover corporate, financial services and personal tax issues surrounding the sale of the family company, including steps which need to be taken pre-sale and post-sale as regards the structuring of the transaction in a way to achieve best value and the structuring of the proceeds in a tax efficient way using corporate family investment structures (such as OEICs, PICs and trusts).

Rosalyn Breedy Rosalyn has been a corporate and financial services lawyer for over 22 years working in private practice, investment banking and at a multi-family office. She provides financial services regulatory and commercial advice to trustees, private capital investors, private wealth managers and entrepreneurs (particularly private equity, hedge fund principals, fintech businesses) and other city professionals. Camilla Wallace Camilla advises high-net worth individuals, both UK and non-UK domiciliaries, on estate planning to mitigate the incidence of inheritance tax and control the devolution of estates. She has experience of both offshore and onshore trust structuring and of advising trustees and beneficiaries in relation to the day-to-day management and administration of trusts and estates. Edward Craft Edward is a corporate governance specialist who advises companies across a broad range from start-ups, public companies and major groups. His practice focuses on governance and growth businesses, including those within the SME sector as well as infrastructure work and complex joint venture structures.

Outline 1. Background Camilla Wallace 2. Sale of the Business Edward Craft 3. Why choose an OEIC? Rosalyn Breedy 4. Personal Tax Camilla Wallace

The Facts • • Portland Brewery Holdings Limited was, until 2013 a non-listed public company • only one member of the wider family involved in management (Peter) (CEO, statutory director) • three generations represented: re-registered in 2010 in order to allow it to facilitate a transaction to remove difficult minority shareholders - settlor of trust (WS Portland, deceased) was founder - WS Portland had four children from two marriages - David Portland, Sarah Portland Kate Eriksson (neé Portland) are three children of WS Portland from marriage 1 - Karen married Olaf Eriksson, a Norwegian national and they brought up their family in Oslo - Kate died in 2014 - Anna, Sven and Bjorn are adult children of Kate (aged 20, 22 and 24) - Peter is son of WS Portland from marriage 2 • some complexity in taxation status

Portland Brewery Holdings Limited Trustees of WS Portland 1974 Settlement Karen Eriksson (decd. ) Peter Portland 37. 5% GY 1 Nominees Limited 25% 4. 17% Sven Eriksson 4. 17% Portland Brewery Holdings Limited Portland Brewing Limited Sarah Portland 12. 5% Anna Eriksson David Portland Bjorn Eriksson 4. 16%

Tax Position Trustees of WS Portland 1974 Settlement Peter Portland David Portland UK resident GY 1 Nominees Limited offshore trust Swiss res and dom Anna Eriksson UK res, non-dom Sven Eriksson UK res, non-dom Portland Brewery Holdings Limited Portland Brewing Limited Sarah Portland US res and dom Bjorn Eriksson UK res, non dom

The Deal • • • Bidco, Inc. has offered £ 800 m for all of the shares of Portland Brewery Holdings Limited a fully priced offer which all wish to accept – representing a 60% premium over what the family believe the business to be worth transaction urgency simple deal terms: 100% of consideration payable at closing locked box based on full year accounts to 30 June 2015 key permitted leakage is an £ 80 m pre-sale dividend strip which is additional to the purchase price

Sale of the Business • Preparation - getting fit for sale - due diligence information - strategic planning for family members - economies of scale - spread of investment risk - reorganisation to insert selling vehicle? - PCC/ICC structures? - use of OEIC at this stage? • Structuring the deal - time pressure from Bidco, Inc. - risk allocation - transfer of shares is the easy part

Portland Brewery Holdings Limited Trustees of WS Portland 1974 Settlement Peter Portland David Portland 37. 5% GY 1 Nominees Limited 25% Offer subject to Code 12. 5% Anna Eriksson 4. 17% Sven Eriksson 4. 17% Bjorn Eriksson 4. 16% sale of entire share capital to Bidco, Inc. Portland Brewery Holdings Limited Portland Brewing Limited Sarah Portland

Deal Issues • who is liable under Buyer protections? • trustee as a seller • is Peter prepared to bear disproportionate risk? • claim periods • use of W&I insurance • seven sellers will have different proportions of the net of tax pot due to individual status impact on future investment strategy

The Sale Trustees of WS Portland 1974 Settlement Peter Portland David Portland 37. 5% GY 1 Nominees Limited 25% 4. 17% Sven Eriksson 4. 17% Bidco, Inc. Portland Brewery Holdings Limited Portland Brewing Limited 12. 5% Anna Eriksson sale proceeds Sarah Portland Bjorn Eriksson 4. 16%

Why choose an OEIC? • Considerations - cash requirements in short, medium and longer term - family desire to invest together - strategic investment allocation - balance between income and capital • Other options - cash (discretionary investment management agreement with separate custody agreement) - loan note - family investment company - private OEIC

The considerations • Tax - cash - net of capital gains tax at 28% - subject to Peter claiming 10% ER rate tranche - loan note- capital gains tax when loan note drawn down/credit risk - family investment company –corporation tax rates 20% reducing to 18% in 2020 - FCA authorised OEIC - tax benefits of FIC plus exempt from UK tax on capital gains tax - need to be comfortable with investment restrictions • Other benefits of the OEIC - privacy (the FRN) - flexibility ( ability to deliver differing returns to different generations) - independent governance/reporting / monitoring of investments • Disadvantages - costs (only suitable for sizeable portfolios)

What is an OEIC? • Definition of open – ended investment company - a collective investment scheme structured as a corporate vehicle - needs to be FCA authorised OEIC (NURS) - keeping it private • Key parties - authorised corporate director - investment manager - depositary - administrator - auditor - lawyers

NURS/UCITS Investment Restrictions UCITS fund can invest in the following classes of asset: • transferable securities/money market instruments traded on EU-regulated market • cash and near cash (e. g. bank deposits and treasury bills) • units of other UCITS/other non-EEA CISs (subject to conditions) • derivatives and forward transactions (subject to conditions) all subject to spread and concentration requirements

Spread and Concentration Requirements for UCITS • max. 5% fund assets can be invested in: • transferrable securities or money market instruments issued by a single body • 5% limit can be raised to 10% for 40% of portfolio • max. 20% fund assets can be invested in deposits with a single body • exposure to derivative/broker counterparty max. 5% • 5% limit can be raised to 10% is counterparty is an approved bank • max. 20% investment in transferrable securities/money market instruments issued by the same group • max. 35% investment in government or public securities, subject to conditions including • max. 30% in a single issue • securities must come from 6 different issuers • names of issuers must be set out in prospectus

Additional flexibility for a NURS has broader investment powers than a UCITS NURS can also invest: • max. 100% assets in real property • 10% assets in transferrable securities issued by single issuer • 10% in gold • 20% in unlisted securities • 35% in other collective investment schemes

How to set up a private OEIC • Establishment • requirements and restrictions • incorporation and key documents • instrument of incorporation • comparison against model form/compliance with the OEIC Regulations • draft prospectus and checklist • key investor information document (KIID)/model portfolio • solicitor’s certificate, form and fee • income class/balanced/capital • appointment of managers • Ongoing • annual report and audited accounts • quarterly tax statements and managers report • closure/amalgamation

Post Sale Trustees of WS Portland 1974 Settlement Peter Portland David Portland UK resident GY 1 Nominees Limited offshore trust Swiss res and dom Anna Eriksson UK res, non-dom Sven Eriksson UK res, non-dom WSP OEIC investments Sarah Portland US res and dom Bjorn Eriksson UK res, non dom

Personal Tax General principles of UK taxation • residence • domicile • situs of asset • remittance basis • July Budget changes UK taxation of OEICs/Offshore Funds • reporting/non-reporting funds • taxation of distributions • taxation on disposal of shares

Contact Details Rosalyn Breedy rbreedy@wedlakebell. com 0044 20 7406 1629 Camilla Wallace TEP cwallace@wedlakebell. com 0044 20 7406 1678 Edward Craft ecraft@wedlakebell. com 0044 20 7395 3099 www. wedlakebell. com This document is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases. This reflects the law as at the date of publication. © Wedlake Bell LLP 2015. All rights reserved.

Offshore Planning for UHNWs using Corporate Family Investment Structures A case study Guernsey STEP Rosalyn Breedy Camilla Wallace Edward Craft Wedlake Bell LLP 15 October 2015 #10595143