Tax implications of a mistake on a change of trustees
Produced in partnership with Katharina A. Byrne.
Tax implications of a mistake on a change of trustees

The following Private Client practice note Produced in partnership with Katharina A. Byrne. provides comprehensive and up to date legal information covering:

  • Tax implications of a mistake on a change of trustees
  • Meaning of trustee for tax purposes
  • Residence of a trust for tax purposes
  • Residence rules for trusts for periods to 5 April 2007
  • Residence rules for trusts for periods from 5 April 2007
  • Trust residence—transfers between trusts and multiple settlors
  • Statutory residence test: relevance of split year status of individual trustees
  • IHT definition of trust residence
  • Tax consequences of importing a trust to the UK
  • Income tax
  • More...

It is vital that the correct procedure is followed when there is a change of trustees. Depending on the circumstances, the relevant steps will be set out in the trust instrument, governing legislation, or both. The mistake may consist of an ineffective retirement of the current trustee, or an ineffective appointment of the replacement trustee, or both.

Where a mistake is made, it can have serious consequences. For the trustees, it can mean an unexpected tax charge, as in the English case of Jasmine Trustees Ltd and others v Wells & Hind [2007] 1 All ER 1142 (see below). Another consequence is that the former trustees continue in office, remaining subject to all the usual duties of a trustee, but without possession and/or control of the trust property. For the 'new' trustee, this means that he is not actually the trustee, but at most, a trustee de son tort (a category of constructive trustee), exposed to all the liability which that status involves.

Meaning of trustee for tax purposes

The term 'trustee' is not defined for income tax or capital gains tax (CGT) purposes. In both cases, however, trustees are treated as if they were a single and continuing person.

Following the Jasmine Trustees case, it is thought that 'trustee' for income and CGT purposes means a validly appointed trustee, not someone who purports to act as trustee.

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