The UK Government has launched a review into whether or not the current tax regime for trusts upholds the principles of transparency, fairness and simplicity. At this stage no particular proposals are being made and the government is asking, on the whole, open questions on the matter.
Trusts play an integral role in asset protection and estate planning due to their flexible nature and their ability to control funds. A key characteristic of a trust (and why people tend to use them) is to protect rather than there being something ‘magical’ about trusts that avoids tax. The mysterious connection between tax and trusts is perhaps a myth. A myth perhaps acknowledged by the government who appear to be particularly interested in non-UK based trusts on this consultation.
What is being considered?
The UK Government is seeking views as to how the taxation of trusts can provide for increased transparency, fairness and simplicity.
The government is determined to make sure that trusts are not used for offshore tax avoidance or to evade tax. The government wants to ensure that it is possible to identify who benefits from trust property for the purposes of taxation and investigating criminal activity.
Various steps have been taken in recent years as part of a global effort to increase transparency. The government is looking for feedback as to what further steps could be taken.
The government has identified that the tax regime should not encourage or discourage individuals from establishing trusts. The government notes that the current regime possibly discourages the use of trusts as the vehicle for making gifts. Therefore, the UK Government wants to know whether the tax regime for trusts could be improved to achieve greater fairness in this respect.
The Consultation Document re-emphasises their commitment to simplifying the UK tax system. Importantly, the government acknowledges that the tax system should not discourage individuals from establishing trusts where it would otherwise be sensible to use a trust. The consultation also mentions issues around vulnerable beneficiaries and it would seem that seeking to streamline this area would be worthwhile. Particularly as it is a clear example of where a trust is being used for demonstrably important protective purposes.
The big picture
This review may lead to changes to the taxation of trusts and to compliance requirements. Positively, the consultation is starting from the premise that trusts have proper and valuable uses – which they do – and it would seem the government wishes to support their use to continue to protect.
If you are considering establishing a trust, it is important to focus on what you want to achieve. The trust is the ideal vehicle to achieve your succession planning aims or asset protection goals in a way which is flexible and gives you control.
On November 16, 2018