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Tax and Trust changes afoot

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Partner and head of our Private Client team James McNeile examines two important notices issued this month: the first one signalling potential changes to taxation of chargeable gains, and the second concerning the final regulations regarding the UK Trust Register.

Alongside the headline-grabbing announcements in the Chancellor’s statement on 8 July regarding:

1. Stamp Duty Land Tax (threshold for SDLT raised from £125,000 to £500,000 until 31 March 2021);
2. the Job Retention Scheme (the introduction of a £1,000 furlough related bonus for staff retained at least until the end of January 2021); and
3. VAT (rate cut from 20% to 5% for restaurants, hotels and some attractions)

A couple of other notices have been given this month which may have a longer lasting and more substantial impact on individuals.

The first is the request from the Chancellor to the Office of Tax Simplification to review and to identify ways in which the taxation of chargeable gains can be modernised. The tone of the request is reasonable but does, rather chillingly, refer to the Chancellor’s interest in ‘the interactions of how gains are taxed compared to other types of income’. With a need significantly to increase tax take, the possibility of moving towards more harmonised treatment and rates of tax for gains and income would have a huge impact. Historically gains have been taxed at significantly lower rates than income and research has previously shown that simply by increasing rates of CGT, you do not necessarily raise the overall tax take. This may mean that change is not simply as to rates of tax and is more nuanced in its impact.

The second is the issue on 15 July of the final regulations regarding the UK Trust Register which was originally created in 2017 to fulfil the UK’s obligations under the EU’s Money Laundering Directives and which has now been modified to reflect changes introduced by the EU’s Fifth Money Laundering Directive and which is managed by HMRC.

The most important points to note are:

1.  Confirmation that non-resident trusts do not have to register simply as a result of taking advice from a UK based services provider (such as a lawyer, investment manager, bank). They will, though, have to register if they have some other connection with the UK and enter into a new relationship with a UK based services provider after the regulations come into effect (expected to be towards the end of August). Because of particular rules regarding the ‘residence’ of a trust, a trust may be treated as non-resident even if it has a UK resident trustee. Such a resident trustee will, though, now amount to a connection with the UK and so a need to register will arise for such a trust if a new relationship is entered into with a UK based services provider;

2.  Non-resident trusts will have to register if they acquire UK property. The details available to the public from the register will be limited if the trust has no UK resident trustee;

3.  Jointly owned land, bank accounts and investment accounts will not in themselves need to be registered (even though such ownership is a form of trust), but if the registered owners are different from the beneficiaries for whom the assets are held (either in whole or in part) then there will be a requirement to register;

4.  Bare trusts/nomineeships will have to be registered except for limited custodian arrangements. This is a significant obligation, extending to arrangements where parents or grandparents hold accounts or investments on bare trust for children/grandchildren; and

5.  Life policies are often held on trusts outside the estate of the life assured. These trusts will not have to be registered if, generally speaking, the policy only pays out on death or life threatening illness and is wound up within two years of maturing.

There are some important compliance obligations coming from these clarifications.

For expert advice on these and other tax and Trust issues please contact our Private Client team:

0800 923 2070     Email

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