UK: Government is currently considering major reform of the taxation of trusts.

As published on ftadviser.com, Wednesday 8th May, 2019.


In November 2018, it launched a public consultation to that end, inviting views on the principles that, in the government’s view, should form the basis of the taxation of trusts: transparency, fairness/neutrality, and simplicity.

The consultation document set out examples of where the government felt these principles were not met, and sought views for and against reform.

The consultation closed at the end of February 2019, and practitioners and clients with any involvement with trusts now await the government’s resulting policy proposals.

t therefore seems an appropriate time to consider the purpose of trusts, their current tax treatment and the ways in which this might be reformed.

The focus of the government’s consultation is primarily the tax treatment – in particular, inheritance tax – of private trusts for individuals.Key Points:

The UK government launched a consultation last November into the taxation of trusts.

Many trusts are taxed unfairly and defeat the object of using them.

Most people use trusts for legitimate reasons, not tax avoidance or evasion.

Accordingly, this article focuses on the tax treatment of life interest trusts, discretionary trusts, and vulnerable beneficiary trusts.

Transparency, fairness and neutrality, and simplicity constitute a reasonable approach to ensure an effective trust taxation system.

Tax neutrality is one of the government’s key aims in assessing the tax treatment of trusts. Neutrality is taken to mean ensuring that tax considerations neither incentivise nor disincentivise the use of trusts.

There are many examples where the use of trusts is clearly disincentivised by the existing tax regime, where the aims of fairness and neutrality are not met, and where reform would be desirable.

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