Scope for specific reforms on taxation of trusts, says CIOT

Yesterday (23), the Government announced that responses to its ‘The taxation of trusts: a review’ consultation (conducted between 7 November 2018 and 28 February 2019) did not indicate a desire for comprehensive reform of trusts, therefore it will keep the issues raised under review.

The CIOT recommends two areas that the Government should address in the short term. First, the complex regime for disabled trust beneficiaries and families. Secondly, the disincentives for administering trusts set up by foreigners in the UK – if they are brought into a UK trust management structure, this could be a bigger source of business to the UK – where it would likely also be better regulated and more transparently run.

Emma Chamberlain OBE, Joint Chair of the CIOT’s Private Client (International) Committee, said:

“The current tax regime for trusts for disabled persons is unnecessarily complex and provides inconsistent relief between the taxes to disabled beneficiaries. Trustees of disabled beneficiaries are necessarily much more closely involved in the financial day-to-day circumstances of disabled beneficiaries as they are often parents or friends. Therefore, a simple transparent structure that is consistent across all taxes would be much better suited to this type of trust. We would like the Government to look at a new bespoke, transparent regime for disabled persons’ trusts together, with simple precedent forms available online to use when setting up such a trust.

“A second area where reform would be sensible is the removal of the significant UK tax disincentives to someone living abroad who wishes to establish a trust in the UK. Enabling foreign settlors to set up trusts in the UK - provided one or more of the trustees is a UK professionally regulated trustee - would bring benefits in terms of transparency because the trust would be required to be registered on the Trusts Register here. Many wealthy individuals from abroad would like to use UK professional trustees and an English law trust system but are not willing to do so because of potential exposure to UK tax, despite the trust having no other connection to the UK. This means UK service providers are bypassed in favour of offshore providers of trust services. The trust exemption could be something equivalent to the investment management exemption. 

“An exemption for fundamentally foreign trusts with no connection to the UK but with a UK professional trustee could bring additional tax revenues into the UK based on the profits of the UK professional trustees and other UK service providers concerned. The trusts can then be run to UK standards of regulation and transparency.”

Notes for editors

The Government has published a summary of responses to the 2018 consultation ‘The Taxation of Trusts: A Review’. The review was welcome in its range and approach and has highlighted areas that would benefit from specific reform. Equally we welcome the government’s decision not to proceed with reforms in areas where we do not think there is a clear case – either in terms of neutrality or more generally - such as the capital gains tax principal private residence relief as it applies to trusts (which is already broadly consistent with its application to individuals).