Variation of trusts

Variation of trusts—variation of trusts without the court's assistance

As a general rule trustees are bound to carry out the settlor's wishes, however circumstances may arise where a variation is desirable, eg in the interests of efficient administration. In such cases the trustees will first consider whether a variation is possible without the assistance of the court, failing which the trustees will then turn to the court for assistance.

Express powers

The trust instrument may have been drafted so as to confer on the trustees powers wider than those contemplated by the general law. Modern trust instruments generally contrive to allow the trustees considerable discretionary powers. For example:

  1. a power of appointment (this is a power given by one person to another to declare how property is to be held)

  2. a power of advancement (this power enables trustees to pay or apply trust capital to or for the benefit of those entitled to the trust capital; the power may be given by the trust instrument or, subject to contrary intention, the power contained in section 32 of the Trustee Act 1925 (TA 1925))

The

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FTT holds that OIGs and AIPs arising in offshore protected trusts are not protected foreign source income (Louwman v Revenue and Customs Commissioners)

Private Client analysis: The case of Louwman v Revenue and Customs concerned Ms Louwman, a UK resident non-domiciled taxpayer who had set up offshore protected property trusts on 7 March 2017, just prior to the implementation of the deemed domicile regime on 6 April 2017. Ms Louwman sought to shield income and gains in those trusts from taxation after she became deemed domiciled for the tax year commencing 6 April 2018, on the basis that the trusts were offshore protected property trusts and the income and gains in those trusts would not be attributed to her on an arising basis. HMRC assessed Ms Louwman to income tax on the basis that offshore income gains (OIGs) and accrued income profits (AIPs) that had arisen in the offshore protected trusts were subject to income tax on an arising basis. Ms Louwman resisted the assessments on the basis that these items of income were ‘protected foreign source income’. The matter went to the irst-tier tribunal for determination and the tribunal considered that the items of income were not ‘protected foreign source income’ on the basis that they could not be said to have a source, and particularly a foreign source. The tribunal therefore considered that they should be subject to income tax. The tribunal also considered that it was not appropriate to take a rectifying interpretation of the definition of ‘protected foreign source income’ in section 721A of the Income Tax Act 2007 (ITA 2007) even though OIGs and AIPs may have been omitted from the definition of protected foreign source income by the inadvertence of Parliament. Written by Ben Symons, barrister at Old Square Tax Chambers.

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