UK unveils new anti-avoidance legislation targeting offshore trusts
In its latest policy paper to target the cross-border financial services sector, the UK government today unveiled proposed legislation that seeks to prevent the use of offshore trusts to avoid tax.
The measure ensures that payments from an offshore trust intended for a UK-resident individual “don’t escape tax when they are made via an overseas beneficiary or a remittance-basis user”, the government said, in a statement outlining the main features of the new legislation.
It noted that the legislation came in the wake of previous statements, in 2015 and 2016, in which it said it would look to tighten up on and add to the existing anti-avoidance rules that relate to the taxation of income arising and gains accruing to offshore trusts.
In a statement on the UK government website, the government said the main law currently relating to the taxation of income arising, and gains accruing to, an overseas trust, that would be affected is set out in sections 86 and 87 of the Taxation of Chargeable Gains Act (TCGA) 1992 (see the link to government website linked to above for the full list).
The government provided details of the effects of the proposed changes, namely:
• that the changes would become effective on or after 6 April 2018
• that TGGA 1992 will be amended such that when capital payments are made to a close family member of a UK resident settlor, those payments will be taxable as if they were received by the settlor under a modified version of Section 87
• capital payments to a non-resident made on or after 6 April 2018 won’t be matched against the pool of trust gains for the purposes of section 87, regardless of the domicile status of the settlor and whether or not the recipient of the payment is the settlor or another beneficiary of the trust
• that the Income Tax (Trading and Other Income) Act 2005 will be amended so that where a benefit is provided to a close family member of a UK resident settlor, the benefits are taxable as if they were received by the settlor
• and that all relevant laws will be amended so that if a beneficiary of a trust who is exempt from paying tax makes a gift to a UK resident of an amount received from a trust, then the UK resident will be liable to pay tax on that sum
Minimal impact on the status quo
“In this latest policy paper the Government is introducing anti-avoidance legislation which stops payments being made from an offshore trust, with a UK resident settlor, to an overseas beneficiary, free of UK tax.
“Instead, payments made to overseas beneficiaries will be subject to tax, as if the settlor had received the payment. It is not clear how many trusts currently make payments to overseas beneficiaries, but I would expect it to be fairly niche, which is supported by the impact assessment.”
This anti-avoidance measure was first announced back in December 2016, and consultation closes 25 October 2017. It will then form part of the Finance Bill 2017-18 legislation which will be confirmed at the Autumn Budget and come into effect from 6 April 2018.