Designated investment refers to a specific type of investment product or asset that receives preferential tax treatment or exemptions in certain jurisdictions. It has become an increasingly popular option for high net worth individuals and families looking to efficiently manage and preserve wealth across generations. With the rise of family offices globally, designated investments are now commonly used in financial hubs like Singapore as part of tax-advantaged vehicles for managing family wealth. This article provides an overview of key information and conclusions surrounding designated investments, including their common characteristics, key benefits, and implementation considerations.
Designated investments are often fixed income securities like government or quasi-government bonds
Many jurisdictions define designated investments specifically to include certain types of low-risk, fixed income products. For example, in Singapore’s tax exemption schemes for family offices like the 13X framework, designated investments include securities, stocks, shares, derivatives, debentures, money deposits, and more. Government bonds and other quasi-government securities issued by statutory boards are very commonly used as designated investments, given their relatively stable nature.
Designated investments enjoy tax exemptions on specified income like capital gains
A key benefit of designated investments is that they receive preferential tax treatment in the form of exemptions on certain types of investment income, such as capital gains. For instance, under Singapore’s 13X scheme, capital gains and other specified income from designated investments are exempt from local income taxes when derived by an approved family office vehicle. This tax advantage makes designated investments highly appealing for high net worth families focused on wealth preservation and succession planning.
Strict criteria must be met to qualify for designated investment tax benefits
While designated investments offer significant tax savings, the requirements to enjoy these benefits are stringent. Using Singapore again as an example, family offices must be approved by regulators, demonstrate substantial business spending and operations locally, maintain certain minimum asset levels, and fulfill various ongoing compliance requirements. Therefore, proper structuring, planning, and maintenance is crucial to successfully implementing a designated investment strategy as part of a family office.
Designated investments are a popular wealth management tool but require expertise
In summary, designated investments have become a popular option to consolidate and protect family wealth as part of a family office, particularly in jurisdictions like Singapore. However, careful planning and compliance is required to successfully adopt this strategy. The involvement of professionals with in-depth expertise in areas like tax, legal structures, investment management, and cross-border wealth planning is highly advisable.
Designated investments offer tax-advantaged treatment of capital gains and investment income for family offices in jurisdictions like Singapore, making them an attractive vehicle for managing multi-generational wealth. However, the stringent requirements mean that proper structuring and planning expertise is needed to successfully implement a designated investment strategy.