The aim and intentions of the consultation, a summary of Wrigleys' response and the government's proposed plans.
HM Revenue & Customs ("HMRC") published a consultation document 'The Taxation of Trusts: A Review' in November 2018.
The aim of the consultation was to establish the extent to which the government's suggested underpinning principles of transparency, fairness and simplicity currently apply to the taxation of trusts and also sought suggestions for proposed reform.
The consultation document states that it "…is intended to:
- Set out the government's principles for taxing trusts, and seek views on those principles;
- Assess the extent to which the current trust taxation system aligns successfully with those principles; and,
- Seek views and evidence on the case for and against reforms to address any areas of trust taxation which do not currently align with those principles."
The government does not make any proposals for reform in the consultation document but suggests that options for reform will be considered once responses have been received.
Wrigleys response to the consultation focused on the current complexities and increased compliance causing day to day problems with the administration of trusts and resulting in higher costs for our clients.
A summary of the main points raised by Wrigleys from 'The Taxation of Trusts' consultation:
- Privacy needs to be borne in mind in any reform, to enable the underpinning principle of confidentiality of trusts to remain intact;
- The new proposed requirements for every express trust to be registered may prove to be excessive and disproportionate and are likely to discourage the continuity of all but the largest of trusts, due to the increased administrative burden;
- To assist settlors, trustees and their agents in providing full transparency, the ability to supply information to HMRC could be made easier and less rigid;
- The way in which inheritance tax ("IHT") is charged against relevant property trusts often creates a situation where there is disproportionality in the professional costs associated with completing the IHT calculation and forms;
- It would be fairer to bring the taxation of trusts for IHT in line with the taxation applicable where an individual makes an outright gift. In lieu of there being no immediate charge to IHT, a higher flat rate of IHT could be charged on exits from the trust and every tenth anniversary;
- Consideration should be given to updating the forms and guidance, including HMRC's manual, in respect of IHT reporting for trusts;
- A simpler tax regime would make discretionary trusts more "user friendly";
- It would be much simpler, fairer and neutral for the trust alone to be liable to tax, as opposed to the settlor;
- Each trust should have its own annual capital gains tax allowance, as individuals do;
- The complex tax pool mechanism that applies where income is accumulated could be dispensed with;
- Capital gains tax holdover relief should be available where assets are transferred to and from a disabled person's trust to bring such trusts in line with ordinary discretionary trusts; and
- HMRC's systems should be more accessible for both professionals and members of the general public.
The consultation closed on 28 February 2019. We are awaiting the government's response to the suggestions received with bated breath! We are told that if the government is minded to make any specific changes, there will be further consultations on such points. We will keep you updated as to any developments. In the meantime, Wrigleys will be happy to advise on the current systems in place for the taxation of UK trusts and assist with the administration of such trusts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.