The Taxation of Trusts

  • Written By: Cherry Reynard
  • Published: Fri, 26 Apr 2019 15:00 GMT

Read our response to HMRC’s November 2018 consultation on the taxation of trusts: A review.

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The government announced at Autumn Budget 2017 its intention to publish a consultation on how to make the taxation of trusts simpler, fairer and more transparent, with consistency added to these goals.

Simplicity cannot be achieved by adding to existing complex legislation and we hope that in implementing any conclusions reached, the temptation to do so will be resisted. We would highlight the complexity added by the changes to the Inheritance Tax (IHT) regime affecting trusts introduced by Finance Act 2006 and the frequent changes made to the taxation of dividends.

Fairness is a subjective judgment and opinions on what is fair will differ between individuals and change with time. A better goal might be reasonable in all the circumstances. We prefer fiscal neutrality as an objective.

A distinction needs to be drawn between fiscal and public transparency. The public right to know is not the same as the public interest. Families and individuals have a legitimate right to privacy and confidentiality.

Frequent changes to the rates and basis on which capital and income are charged to tax impose additional challenges. It takes time for trustees and their advisers to become familiar with how the trust is to be taxed. They also need certainty so that they can compute levels of income that will be available for distribution and ensure that they have adequate liquidity to cover both distributions and foreseeable liabilities.

We hope that the consultation document will stimulate a healthy and wide ranging debate on the taxation regime affecting trusts and promote consideration of new types of trust that reflect the changing needs and demands of society both within and outside the United Kingdom. We welcome the opportunity to comment on the current tax barriers that exist to the creation of new trusts or the winding up of existing trusts.’

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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