View more on these topics

Taxation of Trusts

The Court of Appeal have now ruled on IRC v Botnar, a case that we discussed in a past bulletin after the hearing of the case in the High Court.



The case involved an offshore trust under which neither the settlor nor his spouse could, on the face of the trust, benefit, so that, it appeared that anti-avoidance provisions could not apply to trust income on the settlor.



At the time of the hearing the settlor Otto Botnar (of Datsun fame) was deceased. The issue was with regard to the assessment of trust income during his lifetime.



The Revenue argued that the settlor and/or his spouse could enjoy the income under the trust within the meaning of (the then) Section 478(5)(d) ICTA 1970 (now Section 739) ie, &#34the individual may, in the event of the exercise … of one or more powers, by whomsoever exercisable and whether with or without the consent of any other person, become entitled to the beneficial enjoyment of the income&#34 because:



1. Under the trust (despite the exclusion of the settlor and his spouse from all benefit) the trustees had the power to exercise their power to appoint benefits on to new trusts, trusts which did not need to exclude the settlor or his spouse; and



2. Because, if as a result of seeking Counsel`s opinion, the trustees were advised to act in a particular way, the trust effectively permitted them to so act



It was held that either together or separately the discretionary powers referred to above operated to confer on the settlor the &#34power to enjoy&#34 the income regardless of whether he did, as a matter of fact, actually enjoy the income.



COMMENT



This judgement is extremely important for all trust drafters where under the trust it is important for either income tax, capital gains tax, or inheritance to exclude the settlor/settlor`s spouse from all benefit.



Whilst the case focussed on income tax provisions analogies are authority for other taxes. To be safe it is sensible to seriously consider not only explicitly excluding the settlor/spouse from the discretionary class (although to avoid the GWR provisions for IHT only the settlor need be excluded) but to also ensure that any power to appoint as a beneficiary fresh trusts (where the settlor is alive) explicitly excludes as a condition the settlor/ settlor`s spouse from such fresh trusts.

Recommended

Rathbones appoints managing director for unit trust division

Investment group Rathbone Brothers has appointed Peter Pearson Lund as managing director of subsidiary Laurence Keen Unit Trust Management.Pearson Lund was managing director of Gartmore&#39s unit trust arm and also sat on the firm&#39s main board.Pearson Lund says: &#34Rathbones has a first class reputation in investment management. I am looking forward to developing their unit […]

Scottish Life appoints director

Scottish Life has appointed Professor David Wallace as a director with effect from July 1.Wallace is currently Vice Chancellor at Loughborough University, where he is a specialist in mathematical physics and parallel computing.Board chairman Tom Ross says: &#34He brings to our deliberations a valuable blend of practical and academic experience that can only be of […]

ACA says stakeholder consultation is flawed

The Association of Consulting Actuaries has criticised the Government&#39s consultation process on Stakeholder pensions as flawed.It says the consultation papers on advice and contracting out rebates must be published before comments on the proposed charging structure can be made.ACA pension schemes committee chairman Mark Duke says: &#34Maximum charges cannot be set in isolation . Consideration […]

The Telegraph launches financial advice service

Sedgwick Financial Services and The Telegraph are set to offer independent financial advice to the papers readers.The new service will be branded Telegraph Independent Financial Advisory Service and will initially be available to 5,000 selected readers on a trial basis.Sedgwick&#39s practice director Andrew Oliver says: &#34We are particularly pleased to see a major brand such […]

China tech and Global Alpha: a new great leap forward

By Robin Geffen, Fund Manager and CEO

Internet giant Alibaba is exactly the type of entrepreneurial company that the high-conviction, top-performing Neptune Global Alpha Fund seeks to invest in. Established just 14 years ago in an apartment in Hangzhou, today Alibaba is larger than Amazon and eBay put together and is challenging some of the most powerful internet companies in the world…

Read more 


Important information

Investment risks

The value of an investment and any income from it can fall as well as rise and you may not get back the amount originally invested. Forecasts and past performance are not a guide to future performance. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you of any change to our views.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment