REV BN 24: Chargeable Gains: Trustees’ Change Of Residence
Who is likely to be affected?
1. Those likely to be affected are:
- trustees of settlements who:
- at some time in a tax year, are resident or ordinarily resident in the UK and not also resident for tax treaty purposes in a territory outside the UK, and
- at a different time in the same tax year, are either resident or ordinarily resident in the UK but resident for tax treaty purposes in a territory outside the UK, or neither resident nor ordinarily resident in the UK; and
- certain UK-resident or ordinarily resident settlors or beneficiaries of settlements whose trustees fall into the category described above.
General description of the measure
2. The measure will ensure that trustees of settlements cannot exploit the terms of certain double taxation agreements (DTAs) to avoid being within the charge to UK tax in respect of chargeable gains if, at some time in the tax year when the gain in question arises, they are resident in the UK and not simultaneously resident in a territory outside the UK for tax treaty purposes.
Operative date
3. The measure has effect in relation to disposals of settled property by trustees on or after today.
Current law and proposed revisions
4. For capital gains tax (CGT) purposes, the trustees of
a settlement are treated as being a single and continuing
body of persons, distinct from the persons who are trustees.
The body is treated as being resident and ordinarily resident
in the UK unless the trust is administered outside the UK
(except in certain
circumstances where it is administered in the UK by professional
trustees) and the trustees, or a majority of them, are neither
resident nor ordinarily resident in the UK.
5. Trustees who are resident or ordinarily resident in the UK for any part of a tax year are chargeable to CGT in respect of any chargeable gains arising to them in the year (subject to what is said about DTAs in paragraph 6 below). However, in certain circumstances, section 77(1) of the Taxation of Chargeable Gains Act 1992 (TCGA) provides that the trustees of a settlement in which a UK-resident or ordinarily resident settlor has an interest are not chargeable to CGT in respect of any such chargeable gains which are referable to property originating from the settlor. Instead, chargeable gains of an amount calculated by reference to those gains are treated as arising to the settlor. The settlor is able to obtain reimbursement from the trustees for any CGT paid in consequence.
6. Where trustees dispose of settled property during a part of a tax year when they are resident in a territory outside the UK, their liability to UK CGT may be subject to the terms of a DTA with the territory in question. Some trustees have sought to exploit this situation by disposing of assets when they are resident in a territory where no, or only a small, liability to tax will arise in respect of the gains in question. If the terms of the relevant DTA prevent the UK from taxing the capital gains, no charge to UK tax can arise.
7. The new measure will ensure that liability to tax on chargeable gains cannot be avoided in this way. It will provide that nothing in any DTA can be read as preventing the UK having taxing rights over any chargeable gains which arise to the trustees of a settlement on the disposal of settled property in any case where the disposal is made in a tax year in which the trustees are at some time resident or ordinarily resident in the UK and not simultaneously treated for tax treaty purposes as being resident in a territory outside the UK.
8. REV 10 Modernising the Tax System for Trusts announces
a special tax regime which may apply in relation to settlements
having vulnerable beneficiaries in circumstances where a claim
is made for the tax year concerned. Where that regime applies
for a tax year in relation to a beneficiary who is resident
or ordinarily resident in the UK, the beneficiary will, in
effect, be regarded for the purposes of section 77(1) TCGA
as though he or she were a settlor of the settlement. If the
trustees exploit the terms of a DTA in the way described in
paragraph 6 above the beneficiary may be affected by the new
measure announced in this Note. Where this happens, the beneficiary
will be able to obtain reimbursement from the trustees
for any CGT charged on him or her as a result of the application
of the measure.
9. Where a liability to tax also arises in the foreign territory concerned in respect of any chargeable gains affected by this measure, an appropriate amount of relief from double taxation will be available in accordance with the normal rules.
10. The measure does not affect the treatment of chargeable gains which arise to the trustees of a settlement on the disposal of settled property in a tax year throughout which they are neither resident nor ordinarily resident in the UK.
Further advice
11. If you have any questions about this change, please contact your local Inland Revenue Enquiry Office: see the Telephone Directory for details. Mark Abani on 020 7147 2765 or Mark Abani will deal with more detailed enquiries. Information about Budget measures is available on the Inland Revenue website.
Home Top | Menu
