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.
This case study looks at when a trust could be exported.
- James, a UK resident, settles money into a trust and appoints three trustees to manage the trust.
- At the time of the trustees’ appointment two trustees, Tom and Barbara, were non-UK resident, being family members who reside in Spain. The third trustee, Andrew, is a UK resident.
- As there is a mixture of UK resident and non-UK resident trustees, the fact that James was a UK resident when the money was settled means the whole trust is treated as being UK resident and UK income and capital gains taxes are charged on the income and gains, wherever they arise.
- A number of years later, Andrew is asked to move abroad by his employer.
- Andrew’s move means that all three trustees are non-UK resident and therefore the trust itself becomes non-UK resident.
This trust is therefore being exported and anti-avoidance legislation means that the trust is subject to capital gains tax. The assumption is that, generally, all the assets of the trust are deemed to be disposed of and then immediately reacquired at their market value. As the charge has been caused by the trustees then they will need to meet this tax from the trust assets.
This charge will be assessed in the tax year that the trust is exported and the trustees have 12 months in which to notify HM Revenue & Customs.
In these circumstances, this complication could have been avoided by simply having a new UK resident trustee appointed before Andrew’s change in residency.
There is a relief available where the change in the trust’s residency is caused by the death of a trustee. Using the example of Jerry’s trust, had Andrew died rather than moved abroad then the body of trustees would still have become non-UK resident. However, if a new UK resident trustee is appointed within six months of Andrew’s death then the export charge will not apply.
Tags: Canada Life | Residency | UK Adviser | Wills And Trusts
