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21 November 2018

83: Could we see further tax changes for offshore trusts?

When the government says it wants to ‘address any remaining opportunities to use trusts, in particular non-resident trusts, for tax avoidance or evasion’, readers of this blog will know that it is time to sit up and listen, even though we have so far been given little more than straws in the wind to guide us.

Nearly a year ago, at Autumn Budget 2017, the government announced its intention to publish a consultation in 2018 on how to make the taxation of trusts ‘simpler, fairer, and more transparent’.

The long-awaited consultation document (The Taxation of Trusts: A Review) was published on 7 November 2018, a week after the 2018 Autumn Budget. The consultation closes on 30 January 2019 and changes, if any, are unlikely to be proposed until some time after that.

The document does not provide much in the way of proposals. Essentially it sets out some broad principles and statements and widely framed questions to elicit views on whether and, if so, how trust taxation reform should take place in order to meet those stated principles of simplicity, fairness and transparency.

The global drive for transparency has already seen the introduction of the PSC Register for companies, and the Trust Register. The UK is also seeking further transparency with proposals under way for a public register of beneficial owners of UK residential property by 2021.

However, despite these recent developments and the systematic shutting down of avoidance schemes and tightening of the tax rules over the past decade, the government ‘continues to have some concerns around the ways in which non-resident trusts are used’ and now wishes to ‘address any remaining opportunities to use trusts, in particular non-resident trusts, for tax avoidance or evasion’.

The document notes that the government believes that the UK income, inheritance and capital gains tax regimes produce the broadly neutral result needed to secure fairness in the tax system. However certain aspects of the inheritance tax rules are specifically mentioned as areas for possible reform.

So little information is given that it is hard to make an educated guess as to where this consultation might lead. The concern of course is that changes brought in to flush out those using trust structures for tax evasion, and avoidance which the government deems unacceptable, will adversely affect the innocent: those running trusts who adhere to their tax and other compliance requirements in the UK and elsewhere.

Offshore trustees are already having to respond to the ever-expanding range of measures introduced in the UK and elsewhere to increase transparency. In addition, trustees with a UK connection (whether settlor, beneficiaries or property assets) are having to get to grips with the significant changes to the UK tax rules in recent years. It may be that further changes to the tax code will follow.

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