HMRC launched the new ‘The Taxation of Trusts: A Review’ yesterday in a bid to clamp down on the use of trusts to avoid or evade tax and make them more transparent.
Quilter backed the approach, with the firm’s tax and Financial Planning expert Rachael Griffin saying: “Trusts have their place and what is needed is a clear and transparent regime so that any concern over them being used for unsavoury circumstances is removed.”
The consultation focuses on three key areas and defines them as follows:
• Transparency: Trusts should be sufficiently transparent so that they cannot be used to hide the beneficial ownership of funds or assets; and non-resident trusts should be sufficiently transparent for government to ensure that such trusts do not offer the opportunity to avoid or evade UK tax liabilities.
• Fairness and Neutrality: Trust taxation should be fiscally neutral: their tax treatment should neither encourage nor discourage the use of trusts. In particular, trusts should not offer tax avoidance opportunities.
• Simplicity: Trust taxation, and the accompanying administrative processes, should be sufficiently straightforward that the tax system does not disincentivise the use of trusts when it is appropriate for them to be used; and minimises the likelihood of error.
Ms Griffin said: “The history of trusts dates back centuries with the likes of Charles Dickens and Jane Austen basing entire novels about the fortunes of wealthy families dictated by terms of trusts.
“That seems a far cry from the world we live in today, however, while the taxation of trusts has moved on since then relics of the past still exist.
“So it’s sensible the Government consider the taxation of trusts and how they fit in modern day society.
“However, we’re pleased to see that the Government are not planning to tear up the rule book and do away with trusts completely.”
She added: “Perhaps because of its historic origins some people assume trusts are only for the rich.
“However, they have a particularly important place in today’s society.
“In fact they are perhaps even more important after this week’s announcement by the Ministry of Justice that they are increasing probate fees to up to £6,000 depending the value of the estate.
“Using trusts can help reduce the value of an estate for Inheritance Tax purposes, meaning a lower charge will apply.
“People concerned about how beneficiaries will pay the probate fees could leave sufficient funds in a life insurance policy, and provided the policy is written in trust, it can be accessed immediately on death, without the need for probate.”
She also said trusts served as “a particularly important Financial Planning tool given that complex families are the new norm.”
She added: “Complex family relationships can lead to challenges when it comes to how wealth is handed down.
“For instance if a parent dies without a will and the surviving spouse remarries, the new spouse could stand to inherit the family wealth instead of it being passed to the children.”
Research by Quilter showed that 65% of people thought trusts were a good way to safeguard wealth and 62% of respondents who had set up a trust said it gave them peace of mind.
A further 60% chose trusts because they allowed them to choose their beneficiaries and 50% believed they offered an element of security.
Quilter called on the Government to ensure the Office of Tax Simplification’s review into Inheritance Tax and trusts was joined up with this new consultation to avoid making “an already complicated tax puzzle impossible.”