Enter Your E-mail

Matthew Hutton MA, CTA (fellow), AIIT, TEP, highlights planning points and pitfalls in the context of trust tax planning.

Matthew Hutton

Context

The following were among some interesting points made at the 7th Annual LexisNexis Tolley Tax Planning with Trusts Conference 2007 in London on 16 May 2007.

CGT: Trustee residence

Professional attention is being focused on new s 69(2D) REPLACE ed into TCGA 1992 by FA 2006, with effect from 2007/08.  A trustee who is not UK resident is to be treated as UK resident ‘at any time when he acts as trustee in the course of a business which he carries on in the UK through a branch, agency or permanent establishment there’.  The worrying point is that it may not take very much to constitute a branch, agency or permanent establishment in the UK.  Consider, for example, a multi-national group, with a UK company.  If office facilities are made available by the UK company to the employees of foreign sister subsidiaries which are trustee companies, could use of that facility, even occasionally, make that non-UK company UK-resident?

[Giles Clarke noted that discussions with HMRC on this point are ongoing.  The corresponding income tax provision is in ITA 2007, s 475(6).]

Hold-over relief: settlor-interested trust restrictions from 10 December 2003

The claw-back charge under TCGA 1992, s 169C applies so as to bring into charge a held over gain if within six years after the end of the tax year in which disposal takes place the settlement becomes settlor-interested.  This could apply where the settlor acquires a dependent child in this period and the terms do not preclude him or her from benefiting while dependent. [Equally, as I have pointed out, the claw-back could kick in if a beneficiary becomes a settlor by contributing bounty to the trust fund: there is neither a de minimis nor a pro rata rule.]

(Andy Richens, Tax Technical Director of Bishop Fleming)

Comment

Of these two points the second one is especially worthy of note, as continuing to present something of a ‘heffalump trap’.  Given the ease with which a settlement could inadvertently become settlor interested within (broadly) six years after the end of the tax year in which the disposal takes place, rigorous systems should be established within the office to ensure that the danger does not materialise.

Trust taxation modernisation

Have HMRC decided that it is too complicated simply to abolish the tax pool?  New s 497 of ITA 2007 gives a very good explanation of its operation.  If so, that would mean that the income streaming proposal has been abandoned.

Trustee management expenses

Interestingly, for purposes of non-interest in possession trusts, new ITA 2007, s 484(5)(b) provides that an expense is allowable only so far as it is properly chargeable to income, ignoring the express terms of the settlement.  Note that one (helpful) change from the previous legislation is that the latter (TA 1998, s 686(2A)) gave relief for expenses which are ‘paid’, whereas section 484 of ITA 2007 gives relief for allowable expenses ‘incurred’ in a tax year – changes are not meant to happen in Tax Law Rewrites!  The same word ‘incurred’ is used in s 500 of ITA 2007 in relation to the reduction of a life interest beneficiary’s income for income tax purposes for expenses incurred by the trustees in the current tax year or in an earlier tax year.

(Andy Richens, Tax Technical Director of Bishop Fleming)

More Information

The above article has been taken from Matthew Hutton’s Capital Tax Review, a quarterly update for professional advisers of private clients. For more information, visit http://www.taxationweb.co.uk/books/capital_tax_review.php