Anti-avoidance ― traps for the unwary

By Tolley in association with Paul Davies at DWF

The following Trusts and Inheritance Tax guidance note by Tolley in association with Paul Davies at DWF provides comprehensive and up to date tax information covering:

  • Anti-avoidance ― traps for the unwary
  • Residence status of trustees
  • Appointments of trustees
  • ‘Exhaustive’ trust appointments
  • Problems arising out of claims for hold-over relief
  • Disposals of trust interests
  • Disposals of assets used in trade carried on by another person

The decision of the Supreme Court in Futter and another v HMRC established that it will be much more difficult for trustees and other fiduciaries to set aside actions they have taken that have had unfortunate tax consequences. In the Futter case, trustees acted upon professional tax advice which turned out to be incorrect, and they were obliged to accept the consequences. Accordingly, it is more important than ever that the trustees avoid such consequences and that advisers are alert to the problems that might arise from the actions of the trustees.

Futter and another v HMRC [2013] UKSC 26 (subscription sensitive)

This note highlights some of the more common issues from a capital gains tax (CGT) perspective; however, it is not a comprehensive list of the possible traps that may give rise to unanticipated tax liabilities.

Residence status of trustees

The trustees are treated as a single continuing body of persons and therefore a change of trustees does not normally have any CGT consequences. However, if a change in the identity or residence status of one or more of the trustees causes the trust to become a non-resident trust, then this will give rise to a deemed disposal of all of those trust assets which would be outside the scope of CGT within a non-resident trust. See the Basic principles of CGT for trusts guidance note. On a change of residence, assets such as shares and investments would become liable to CGT based on their value at that date, notwithstanding that they have not actually been sold. This is the so-called ‘exit’ charge.

TCGA 1992, s 80

For property which remains within the scope of CGT, such as UK land or assets used in a UK branch or agency, the CGT charge may be postponed until the actual disposal.

TCGA 1992, ss 80(4),

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