Certain expressions seem to excite those who believe in the conspiracy theory of taxation – that somehow everybody who is richer than they are is somehow “up to something” and not paying their fair share of taxes.
'Non Dom' is one of those expressions: 'trust' is another. Some have formed the view that all trusts are tax avoidance vehicles through which high earners hide vast sums of money from the taxman. As ever, the truth is very different. There are undoubtedly some very large trusts out there. However most of those are designed to protect assets and family wealth by ensuring that money does not get into the hands of profligate younger family members who might spend it all on the modern equivalent of 'wine, women and song'. After all the main plot device of the most popular TV series of recent years – Downton Abbey – concerned a family trust, and nobody to my knowledge refused to watch on the basis that the Earl of Grantham was a tax avoider.
The reality, as shown in recent statistics released by HMRC, is that the vast majority of trusts have very little income and that they pay tax on that income. Half of all trusts reported annual investment income of £3,000 or lower and 90 per cent of trusts have average income of less than £20,000. It is only a very small number of trusts who have substantial amounts of income.
Historically trusts did offer significant tax advantages, but those days are long gone. So when you next hear that somebody has set up a trust or is a beneficiary of a trust, don’t go leaping to conclusions – not every can contains worms!
For more information please get in touch with Andrew Hubbard, or your usual RSM contact.