Trusts Taxation Reform: Not Today Please! (Video)

• Published date: 18 May 2021
• Subject Matter: Corporate/Commercial Law, Tax, Family and Matrimonial, Income Tax, Tax Authorities, Trusts, Wills/ Intestacy/ Estate Planning
• Law Firm: Wilberforce Chambers
• Author: Mr Michael Ashdown

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What are the principles underpinning the taxation of trusts, and does the law as it stands align with them? These were the two broad questions asked by the HMRC consultation document on the taxation of trusts, published back in November 2018, and following from the government's commitment at the autumn 2017 budget to consult on "how to make the taxation of trusts simpler, fairer, and more transparent". The consultation developed these ideas, asking a mixture of very general questions (e.g. about possible measures to "enhance transparency", and the use of non-resident trusts), and very specific ones (e.g. on the income tax treatment of trust management expenses, the consequences of transactions being declared void, and the simplification of vulnerable beneficiary trusts).

Although the consultation closed in January 2019, HMRC's summary of consultation responses was only recently made available. The consultees were primarily tax advisers (mostly accountants and solicitors), umbrella groups for such advisers (e.g. the Chancery Bar Association) or their clients (e.g. Historic Houses) but also included campaigning organisations (e.g. Church Action for Tax Justice).

At the highest level of generality, there was broad support for the principles of transparency, fairness and neutrality, and simplicity. Whilst doubtless gratifying for HMRC to be told that tax and trusts practitioners and others endorse their approach, I do wonder whether they really expected anyone in 2019 to respond that they were looking for unfair advantages for their clients and therefore would prefer a complex and opaque system? Some respondents did at least point out that the long-term use of trusts across generations also requires a focus on certainty and stability, though it is hard to imagine this being popular with any government which enjoys the ability to tinker with the tax system from year to year.

On transparency, HMRC was careful to ask about appetite for further measures, rather than about the popularity of the burdens imposed by the current regime (including the Trust Registration Service, and the DOTAS requirements). Although practitioner respondents were of the firm view that enough is enough, HMRC are surely more likely to invoke in future the views of "respondents outside of the trust and taxation professions" who were more concerned that "trusts used for illicit purposes can sometimes prove too elusive to track down and prosecute those behind them".

A similar split was...