TSEM1461 - Introduction to trusts: new trusts: trustees’ residence for income tax and capital gains tax purposes: periods from 6 April 2007

ITA/S474 and TCGA92/S69(2)

From 6 April 2006 the trustees of a settlement are treated as a single person for both income tax and capital gains tax purposes and this deemed person is distinct from the actual persons (individuals and/or companies) who act as the trustees.

From 6 April 2007 a common residence test applies for both income tax and capital gains tax purposes and it is based on the existing income tax test in TSEM1455.

All trustees are resident in the United Kingdom

The trustees (the ‘deemed person’ mentioned in the first paragraph above) are resident in the UK for income tax and capital gains tax purposes.

All trustees are resident outside the UK

The trustees are not resident in the UK for income tax and capital gains tax purposes.

There is a mixture of resident and non-resident trustees acting at the same time

The trustees are resident in the UK unless the settlor was:

• not resident in the UK and
• not ordinarily resident in the UK and
• not domiciled in the UK

at the time the settlor made or is treated as making the settlement and any time when the settler adds property to the settlement. If the settlement arises on a settlor’s death then the settlor’s residence and domicile status are considered immediately before the death (ITA/S475(5) and ITA/S476, TCGA92/S69(2B) and (2C).

Changes in residence status

For income tax purposes where the residence status of the trustees (the ‘deemed person’) changes during a tax year, the year is split. Where liability to UK income tax is affected by residence it is computed by reference to the period of the trustees’ residence in the UK during the tax year.

For capital gains tax purposes, if the trustees are resident for any part of a tax year, gains arising at any time in the tax year are chargeable to capital gains tax. The split year treatment does not apply. Where the trustees become non-resident during the year there may be an exit charge (see CG38350+).

UK resident professional trustee

The practice of treating a UK resident professional trustee as not resident for capital gains tax purposes in certain circumstances (see TSEM1460) no longer applies.

Non-resident professional trustee

A professional trustee who is not resident in the UK is treated as resident if he or she is carrying on the business of a trustee through a branch, agency or permanent establishment in the UK. More detailed guidance on this particular point is available at TSEM Appendix 1