No such thing as a simple life for trustees

13 July 2016

Joan Foster

With the current focus on making tax compliance easier, including the planned digital age of tax and the aim for better access for all to government services, the direction of travel for trustees seems to be taking a different path.

When new legislation is introduced the impact for trusts is often ill-considered, and is sometimes only an afterthought. The most recent example of this is the published version of the draft Finance Bill for the Residence Nil Rate Band downsizing relief which fails to cover the situation when the home is held as a trust interest in which an individual has a life interest - a point that the Chartered Institute of Taxation is suggesting should be changed before legislation is finalised.

The impact of legislation not being written with trusts in mind can make applying those rules unnecessarily complex and difficult for trustees to understand and apply in practice. This in turn adds an increased risk for trustees and beneficiaries alike coming up against unexpected tax consequences when matters have been misunderstood or overlooked.

Where a trust holds property there can be implications for a life tenant with regards to the availability of the residence nil rate band. In addition there are complications on the application of the new stamp duty rules regarding the purchase of additional properties by the trustees or the beneficiary personally. It is not only trusts with property that have complex tax situations, those trustees that hold unquoted shares need to be aware of the beneficiaries’ own shareholdings to determine the availability of Entrepreneurs’ Relief for any disposals within the trust. These are just a few examples of new legislation that is at the forefront of our minds with the many changes for property owners and the recent changes and extension to Entrepreneurs’ Relief.

Trusts with professional trustees should be well placed to keep up-to-date with the many changes in what is already complex legislation. But what of those lay trustees? In order to successfully fulfil their fiduciary duties in their role as trustee it is ever more important to have regular contact with the beneficiaries and in turn their executors, to work together to understand and manage their tax affairs efficiently. Something that is not always easy where there are a wide range of beneficiaries with different tax situations and possibly consideration of taxes in other jurisdictions to contend with.

If you would like any more information on this issue please contact Joan Foster or your usual RSM contact.