Trusts: How to get the jurisdiction right
By Kirsten Hastings, 5 Dec 17
Trusts form an important part of UK tax planning and can offer a wide range of opportunities. To advise a client correctly regarding the setting up and maintenance of a trust, it is important to establish if the trust itself is treated as a UK resident trust or a non-UK resident trust, says Canada Life.
As well as exporting a trust, a trust can be imported to the UK where a non-UK resident trust becomes UK resident. Let’s look at another example.
- Megan is a non-UK resident and she settles money into a trust.
- She appoints three trustees to manage the trust; Peter and Lois, who are both UK residents, and Brian who is non-UK resident.
- As the trustees have mixed residency the residency of the trust is based on Megan’s status at the time of the settlement. As she was a non-UK resident, the whole trust is treated as non-UK resident and therefore UK tax only arises on the income and gains arising in the UK.
- A few years later, Brian is offered a job in the UK and moves, becoming a UK resident.
- As all the trustees are now UK resident, despite Megan being a non-UK resident, the trust becomes a UK resident trust and UK tax now applies to all the income and gains, irrespective of where they arise. This could make Brian’s move a very expensive one for the trust.
There is no tax charge for making a trust UK resident. However, if the trust is then subsequently exported again to remove it from the UK tax regime then an export charge will arise.
This could have been avoided by a new non-UK resident trustee being appointed before Brian moved to the UK, as it would maintain a mixture of non-UK resident and UK resident trustees. The residence of the trust would then still depend on Megan’s status at the time of the settlement.
Again, there is a relief where the residency is changed due to the death of a trustee. In this example, if Brian had died the trustees would all be UK resident; however, by appointing a new, non-UK resident, trustee within six months of Brian’s death, the trust would remain non-UK resident.
Tags: Canada Life | Residency | UK Adviser | Wills And Trusts
