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Matthew Hutton MA, CTA (fellow), AIIT, TEP reports from a recent tax conference on a trap in relation to non-UK resident trusts. 

Introduction

The determining factor for a CGT liability to arise is UK residence, with the well-known protection of the remittance basis where the taxpayer is non-UK domiciled and claims the remittance basis. So, while the loss of a non-UK domicile will cause a forfeiture of the remittance basis for the future, the following trap in relation to non-UK resident trusts can easily go unnoticed. 

That is, unmatched capital payments made to the foreign domiciliary when he was foreign domiciled or non-UK resident can subsequently be charged on him if the capital payments are matched to trust gains realised at a time when he has acquired a UK domicile and UK residence. Moreover, none of the transitional reliefs such as rebasing will then apply. The critical date for charging to UK tax is the date of matching and not the date of the capital payment or the date the gains are realised. 

Example

X, a foreign domiciled beneficiary, receives capital payments from Trust B of £1M in February 2008 just before the changes to TCGA 1992 s 87 (capital payments) came into effect in FA 2008. That payment is matched to £500,000 of trust gains in 2007/8. This leaves £500,000 of unmatched capital payments. No further gains are realised by the Trust for some years. X is not settlor of Trust B, but is settlor of Trust A.

In 2011/12, X remarries and decides to live in the UK permanently. He notifies HMRC accordingly. In a subsequent year, Trust A and Trust B realise gains. X is charged on Trust A gains under TCGA 1992 s 86 as the settlor. He is charged on Trust B gains by reference to the capital payment he received prior to April 2008, even though he was not UK domiciled at that point. Any rebasing election will no longer be relevant because he is not a foreign domiciliary at the date of matching.

Note that a mere change from a remittance basis user to a non-remittance basis user would not cause problems. For example, if X opted not to claim the remittance basis because he still intended to leave the UK and Trust A or Trust B realised gains, this would not result in a tax charge on him under TCGA 1992 s 86 and the earlier capital payments would not be charged on him now.

Similar problems can arise where, for example, a UK or a foreign domiciliary who is non-UK resident returns to the UK even if he has been non-UK resident for five years. If the capital payment received while he is non-UK resident cannot be matched in full to trust gains, then he could be charged to tax at a later date when the trust eventually realises a gain (the foreign domiciliary being charged on a remittance basis).

(IBC’s Inheritance Tax Conference 18 May 2010, lecture by Emma Chamberlain of Pump Court Tax Chambers)

Monthly Tax Review

The above is drawn from Matthew Hutton's Monthly Tax Review Notes to support a 90-minute presentation delivered each month in London, Ipswich and Norwich. Matthew offers a complimentary 'taster' session plus a 50% discount for the first six sessions attended thereafter. Please see below for further information.

What is MTR?

MTR is a 90-minute monthly training course, held in London, Ipswich and Norwich – as well as a reference work. Each Issue records the most significant tax developments over a wide range of subjects (see below) during the previous month, containing 30 to 40 items. The aim is not necessarily to take the place of the journals, but rather to provide an easily digestible summary of them and, through the six-monthly Indexes, to build up, over the years, a useful reference work. 

The first aim, therefore, of MTR is to inform. The second and subsidiary aim is to provide a monthly forum for the discussion of issues that tend to come up in professional practice, largely, though not exclusively, prompted by specific items in MTR.

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MTR is designed not primarily for the person who spends 100% of his/her time on tax, but rather for the practitioner (whether private client or company/commercial) for whom tax issues form part of his/her practice. Attendance at MTR qualifies for 1.5 CPD hours for members of the Law Society, for 1.5 CPD points for accountants (if MTR is considered relevant to the delegate’s practice) and (subject to the individual’s self-certification) should also count towards training requirements for the CIOT. For STEP purposes, MTR qualifies for CPD in principle, on the grounds that at least 50% of the content is trust and estate related.  
 
What is the content of MTR?

The material is drawn from HMRC press releases, Tax Bulletins, VAT business briefs, case reports and articles in the professional press. Each item carries a reference as to source which can be followed up if necessary. 

The logic of the ordering of the 12 sections is as follows:

First, Capital Taxation (viz 1. Capital Gains Tax, 2. Inheritance Tax and 3. Stamp Taxes).
Second, Personal Tax (4. Personal Income Tax).
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Despite an inevitable element of selectivity, MTR aims to be catholic in its coverage – and this is reflected in the presentations where appropriate: there may well be NI, VAT or employment tax points of which the person advising mainly on estate planning (for example) should at least be aware. That said, the London sessions at least tend to focus, by majority request, on estate planning issues: it is possible that in future one of the sessions might be geared more to company/commercial matters. 

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