Offshore trusts—the trustee borrowing rules—Sch 4B and Sch 4C TCGA 1992
Produced in partnership with Dhana Sabanathan, Partner of Winckworth Sherwood LLP
Offshore trusts—the trustee borrowing rules—Sch 4B and Sch 4C TCGA 1992

The following Private Client practice note produced in partnership with Dhana Sabanathan, Partner of Winckworth Sherwood LLP provides comprehensive and up to date legal information covering:

  • Offshore trusts—the trustee borrowing rules—Sch 4B and Sch 4C TCGA 1992
  • Transfer of value by trustees linked with trustee borrowing
  • Transfer of value
  • Outstanding trustee borrowing
  • Deemed disposal under Sch 4B
  • Practical tips

The trustee borrowing rules were introduced in 2000 to counter a specific planning scheme known as a 'flip-flop'. The scheme allowed the settlor of an offshore trust to avoid a charge to tax under section 86 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and the beneficiaries of such a trust to avoid a tax charge on capital payments received under TCGA 1992, s 87.

The scheme (of which there were later incarnations) worked along the following lines:

  1. the trustees of the original trust (the flip trust) borrow funds secured against trust assets

  2. the flip trustees advance the borrowed funds on to a new trust (the flop trust)

  3. the settlor and all defined persons are excluded from benefiting from the flip trust

  4. in the following year the flip trustees realise a capital gain on the assets they hold, and

  5. distributions are subsequently made to the beneficiaries of the flop trust

TCGA 1992, s 86 was considered not to apply on the basis that the settlor and all defined persons (including spouse, children and grandchildren) were excluded from benefiting under the flip trust. TCGA 1992, s 87 was thought not to be in point because capital distributions from the flop trust did not include any element of the capital gains realized by the flip trust.

Furthermore the scheme was thought to work as regards TCGA 1992,

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