Build a Better Bridge Medium-term bridges plug Each issue Bridging Introducer answers your questions on how to b
by Lucy Hodge, director, Vantage Finance
I’VE NOTICED MORE BROKERS TALKING ABOUT USING OFFSHORE TRUSTS TO ARRANGE SHORT-TERM FINANCE. WHAT DOES THIS MEAN AND SHOULD I BE DOING IT?
LH: Usually this would be part of a tax planning exercise which has been set up by the client’s accountant and not something which their mortgage broker would be expected to recommend to them or get involved with. For small one off transactions offshore companies and trusts are unusual, however we are seeing more clients come to us wanting to use these vehicles where they are very active in buying and selling property, or looking to use it as a vehicle for a large property transaction. There is no harm in familiarising yourself with the benefits and gaining an understanding of where this type of structure may be appropriate, to allow you to identify a client who may benefit from being referred to a tax planning expert to review their situation, however as their mortgage broker I would stick to making sure you find them the most appropriate deal rather than trying to get involved in tax planning exercises. RJ: The offshore trust is an entity
20 BRIDGING INTRODUCER MAY 2012
by Rob Jupp, managing director, Brightstar Financial
“Any short-term lender offering a medium term product should be able to apply the same quick turn- around times which may be attractive to those who want to move quickly”
in legal terms but in practicality it is an arrangement whereby the owner of particular assets (referred to as the settlor) passes complete legal ownership of the assets in question to a trustee. The trustee (which can be a company or an individual) then becomes the administrator for the assets. Offshore trusts are usually established in a tax haven so that the governing law is tax friendly. Generally speaking, the vast majority of people who decide that an offshore trust could be of benefit to them choose to establish
what’s called a Discretionary Trust. Such a structure enables the assets within it to be used for the direct benefit of any or all beneficiaries at the discretion of the trustee whilst taking into account the wishes of the settlor which are laid out in a document called a ‘letter of wishes’ when the trust is established - letters of wishes can be cancelled or modified at any time. For large property transactions offshore trusts can be highly advantageous but most clients wouldn’t have the financial status to justify it.
HOW SHOULD I BE COMPARING 3-YEAR BRIDGING PRODUCTS’ VALUE FOR MONEY TO MORE MAINSTREAM MEDIUM TERM PRODUCTS?
LH: Comparing medium term products would be no different to comparing pricing on short- term products; it is just over a slightly extended term. I would not say medium term products are considered to be mainstream. The medium term product which Dragonfly Finance pioneered is unique and is predominantly used as a transition into mainstream funding where the client may fall down on criteria imposed by the majority of banks, but offers more attractive pricing than a short- term loan. In addition to this there is the valuable element of speed which short-term lenders are geared towards. Any short- term lender offering a medium term product should be able to apply the same quick turnaround
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