Trust reform put on ice after consultation

Trust reform put on ice after consultation

The government is putting any plans for reform of trusts and how they are taxed on ice following the conclusion of its consultation into the issue.

The consultation, which originally ran between November 7, 2018 and February 28, 2019, sought views on how to make trusts more transparent and their taxation fairer. 

Although feedback varied in the over 100 formal responses received, the consensus was for the government to resist any comprehensive reform of trusts at this time.

As such the government said yesterday (March 23) it instead plans to keep all issues raised under review. 

Respondents – from representative bodies, advisers and trustees – voiced concern about trusts being made more transparent and implications of details being brought into the public domain.

In particular, those working in trusts and tax were generally against further measures being introduced before the effectiveness of existing rules were evaluated. 

However, those working outside of these professions were mainly concerned that trusts were being used to illicit purposes and benefitting from a lack of transparency. 

In its consultation the government also posed the question as to whether trusts’ taxation should be reviewed. 

Here, respondents balked at the prospect of further reform and expressed a desire for certainty and stability. This was especially the case for trusts used as long-term financial planning vehicles for intergenerational wealth planning and not tax planning. 

However it was suggested that, if taxation of trusts was going to be changed at all, current trust tax laws were not as generous as those bestowed upon individuals. 

Trusts have become a popular tool for some tax planners and can be useful when mitigating IHT. IHT review has long been a topic on many advisers’ mind and this consultation was no different.

Here, a significant number of respondents criticised immediate entry charges and argued these added complexity and made trust usage less attractive. 

Assets in trust don't form part of a deceased person's estate, as long as they live for seven years after placing them into trust. This means they are not included when working out IHT.

But this does not mean they are IHT exempt as with many trusts investors pay an initial charge when they set up the trust.

How trusts are taxed depends on the type of trust used.

Jon Yarker is a freelance reporter for FTAdviser