View more on these topics

We have uplift off

Last week, I looked at some of the anti-avoidance provisions announced in


this year&#39s Budget. I will now continue the theme by considering some more


proposals which are directed at the use of non-resident trusts to avoid or


defer UK taxation.


The first proposal which I will review is that relating to beneficial


interests in trusts moving abroad.


Special capital gains tax rules apply to UK-resident trusts which become


non-UK-resident trusts. At the time of emigration, there is:



A tax charge on unreali sed gains.


An uplift to the market value of beneficiaries&#39 interests in the trust.


The purpose of the uplift is to prevent a potential double charge on any


increase in value prior to the trustees&#39 migration of the trust property


(which is charged on exit) and of a beneficiary&#39s interest in that property


(which is charged if the beneficiary later sells the interest).


However, this rule does give opportunities for tax avoidance.


Having realised gains which have not been charged to tax on either the


settlor or beneficiaries of the trust – stockpiled gains – the trusts are


brought onshore and then taken offshore again.


The gains on the trust property escape a tax charge because they were


realised while the trust was offshore. The beneficiary pays little or no


tax on the sale of an interest in the trust because of the rule providing


for its value to be uplifted on the trust&#39s exit from the UK.


To prevent this abuse, there will be no uplift in the value of any


beneficial interest in a trust where, on or after March 21, 2000, the


trustees become non-resident at a time when there are stockpiled gains in


the trust.


Having looked at this aspect of emigrating trusts, I would like now to


look at the position where trustees (usually offshore trustees) participate


in offshore companies as an investment of the trust.


Special tax rules exist to combat tax avoidance where a UK-resident person is a shareholder in an offshore company which is a close company, that is a company under the control of five or fewer participators.


Broadly speaking, where such a company sells an asset (which is not


tangible property used in a trade) at a gain, the gain is attributed to


participators in proportion to their interest in the company.


These rules are being avoided where assets are held in an offshore company


that is owned by a trust – usually an offshore trust – rather than held


directly by the trust. Where the company is resident in a country with


which the UK has a tax treaty and the treaty provides for gains arising to


residents of the other country to be exempt from UK tax, the UK resident


settlor or beneficiaries (or trustees if resident) of the trust cannot,


under present rules, be charged on the gains of the offshore company.


Legislation will be introduced to prevent this avoidance by ensuring that


tax treaties do not prevent gains of offshore companies being attributed to


resident or non-resident trustees as participators of those companies. The


new rules will apply to gains accruing on or after March 21, 2000.


Next week, I will consider what these proposals mean for trusts.

Recommended

Bupa move to tackle rising premiums and attract IFAs

Bupa is offering a comprehensive health cover product in a bid to tacklerising premiums and bring more independent advisers into the healthprotection market.The company says its Fixed Price Plus plan offers premiums up to 65 percent lower than equivalent insurance schemes.Bupa is hoping that the lower prices will attract more IFA clients.The new product features […]

Make hay while the sun shines

James Hay has introduced Flexi-Sipp, a self-invested personal pensionwhich can be linked to funds from Aberdeen Asset Managers, Williams de Broeand Prudential-Bache.The panel agree that the product fits well into the market. Shaw says:“These plans have become popular since drawdown became available and itfits in well.”Flowers says: “Given the way pensions are being driven by […]

Abbey National cuts 500 jobs

Abbey National has announced plans to 500 jobs throughout its 780 national branches.At the same time the high street bank confirmed plans to add 400 jobs to offset the planned dismissals. Those who are among the 500 who will be made redundant will be invited to apply for the new positions.A spokesperson with Abbey National […]

Private Label buys TMP as it targets North-west

Private Label has taken over The Mortgage Partnership to gain access tocustomers in the North-west.Cheshire-based TMP will become Private Label Northern Operations Centre.TMP will continue to offer its own products, transferring to Private Labelmortgages by the summer.All TMP employees are being offered jobs with the new company.Co-founders John Mawd sley and Ian Ward will join […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment