View more on these topics

Tony Wickenden: One step closer to fair and simple trust taxation

Tony WickendenHM Revenue & Customs is seeking views on policy design and any suitable alternatives

After a long wait since it was announced in the autumn Budget of 2017, HM Revenue and Customs published consultation paper The Taxation of Trusts: A Review on 7 November.

The consultation’s aim is to make the taxation of trusts simpler, fairer and more transparent.

I will be looking at the potential implications of the consultation in some depth in a future article but, for now, let us have a look at what it says against each of the broad objectives.

Against the simplicity test, HMRC very much focuses on simplifying the approach to taxation for vulnerable beneficiary trusts (those for beneficiaries with a disability or for bereaved minors).

The government is aware stakeholders have previously expressed concerns that the complexity of the income and capital gains tax rules limits the use of available tax reliefs by those who should benefit.

Tony Mudd: Are clients at risk of HMRC trust reporting penalties?

There are also concerns about the effectiveness of the income tax relief, given the tax pool mechanism can lead to a secondary charge.

The government is committed to taking action to simplify the treatment of these trusts and to ensure the effectiveness of reliefs.

At this stage, it says it would welcome views on the tax treatment these trusts receive, alongside their interaction with age 18 to 25 trusts (a continuation of bereaved minor trusts used in some circumstances).

The government is also interested in views and evidence on other drivers of excessive complexity in the trust taxation system.

For instance, it recognises that one key determinant is the need for trustees to liaise with the settlor or beneficiaries to ensure all parties pay the correct amount of tax, rather than there being a standalone or simplified regime, either for all trusts or for those whose settlors or trustees would welcome a reduction in administrative burdens.

That said, taking a different approach would mean a fundamental change to trust taxation policy and would only be warranted if it constituted a significant improvement in comparison to the current rules.

The government is welcoming viewpoints on all other complex administrative aspects of the current system.

Tony Wickenden: IHT planning faces a critical moment

For example, it is aware that, for many small trusts, income tax admin requirements can seem unduly onerous, especially where the tax due is low.

It is also aware of recent research that demonstrates the cost of employing an agent to calculate the inheritance tax periodic charges for a trust can outweigh the cost of the tax itself.

In relation to transparency, the main reference is to the actions already resulting from the OECD Common Reporting Standard and the implementation of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations.

The new (and, it seems, to be expanded) trust registration provisions will be known to all those with more than just a passing interest in trusts.

Elsewhere, strong focus is given to the use of offshore trusts by UK residents.

Fairness and neutrality
On fairness and neutrality, the spotlight falls predominantly on the trust IHT charges. In particular, the combined impact of entry, periodic and exit charges, and whether they operate fairly and efficiently compared with the IHT outcome of an ordinary gift.

Tony Wickenden: Do not let clients be taken from under your nose

Among the additional topics picked upon for consideration are the application of the private residence exemption for residential property held in trust, trust management expenses and the impact of determining whether a receipt is an income or a capital receipt.

There are five stages to tax policy development:

  • Stage 1: Setting out objectives and identifying options;
  • Stage 2: Determining the best option and developing a framework for implementation including detailed policy design;
  • Stage 3: Drafting legislation to effect the proposed change;
  • Stage 4: Implementing and monitoring the change;
  • Stage 5: Reviewing and evaluating the change.

This consultation is taking place during stage one of the process. Its purpose is to seek views on the policy design and any suitable possible alternatives, before consulting later on a specific proposal for reform.

Responses should be submitted by 30 January 2019.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn



All mortgage transactions on hold as BoE hit by technical problems

UK borrowers cannot access a mortgage right now as the Bank of England confirmed a key payments system has been hit by technical problems. The Bank says it identified a technical issue this morning related to some routine maintenance of the real time gross settlement system payment system and has paused settlement while it resolves […]

Tapering of annual allowance – adjusted and threshold income

The definitions of adjusted income and threshold income used to determine whether, and to what extent, someone’s annual allowance will be reduced can be confusing.  Here we try to make sense of it all. The annual allowance will be reduced for high income individuals from 6 April 2016.  Our previous article Tapering of annual allowance […]


Dashboard at risk of being “a jigsaw with missing pieces” says Steve Webb

The government must move faster on its pensions dashboard consultations and into the delivery phase, mandating all pension providers to sign up to it, says Royal London. Policy director Steve Webb is continuing the call for a concrete commitment on plans from the government, despite Prime Minister Theresa May pledging her support this morning. Pensions minister […]


Alan Lakey: Catch-22 on commercial decisions

I am a great fan of commercial judgement.  After all most readers would not still be in business if they or their employers hadn’t made sound commercial determinations at some point. Of course, not all commercial judgements are sensible or even well thought through and the end result can be detrimental to one or more parties.  […]

Trevor Greetham – Investment Clock

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, presents his latest video update, sharing his current views and the positioning of our multi-asset funds. Watch the video here Download The value of investments and the income from them is not guaranteed and may go down as well as up and investors may […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm