Trusts

The Fifth Anti-Money Laundering Directive came into force on 10 January 2020 with includes a section on the Trust Registration Service (TRS). The TRS, which came into effect in September 2020, provides a register for trustees tor record information. The...

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Although trustees are treated equally responsible for a trust, under these rules they must nominate a ‘lead trustee’ as the HMRC point of contact. The lead trustee has their own unique taxpayer reference (or unique reference number if not taxable).

Trustees must also act with honesty and prudence at all times. If they attempt to make personal gains while exercising their investment powers, they are liable (in the absence of any express provision otherwise) to pay...

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Duty to all beneficiaries

Trustees have duty to consider the interests of all beneficiaries, and not favour one class of beneficiaries over another. For example, the trustee of an interest in possession trust must consider the interest of the life tenant and that of the remaindermen in equal measure.

Rule against variation

Trusts are normally irrevocable once established - that is, trust property cannot be recovered (returned to the settlor) unless the trust is worded to the contrary.

A trust cannot usually be varied once created unless it is established as power of appointment or discretionary trust. In these situations, beneficiaries can be varied if they fall within classes specified in the trust.

Permitted variations

There are certain circumstances where the general rule relating to the revocation or variance of t...

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The above provisions will involve applying to the court for consent, which could prove costly and there is no guarantee of being permitted to make the requested variation.

Finally, under the rule in Saunders v Vautier (1841) , if all possible beneficiaries are over 18, of sound mind, and in agreement with each other, they can demand a trust’s property from the trustees and, in doing so, put an end to the trust.

A charitable trust must be of a charitable nature, for the public benefit and wholly and exclusively charitable. Prior to the Charities Act 2006 (the provisions of which have now been encompassed in the Charities Act 2011), they were divided into four main categories:

Relief of poverty

Advancement of education

Advancement of religion

Other purposes beneficial to the community, e.g. hospitals, animal protection, etc

Following the...

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Outright gifts to charities are exempt from inheritance tax, either during lifetime or on death. Furthermore, if 10% or more of the net estate is left to charity by a will, then the 40% rate of IHT payable on the taxable portion of the estate is reduced to 36%.

Gifts to charitable trusts may qualify for income tax relief under the gift aid system or payroll giving scheme.

The Scottish equivalent of a settlor is a truster

A life interest is a life rent and a life tenant is called a life renter

A remainderman is called a fiar

An appointment of new trustees is called an assumption of new trustees

Statute...

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The Perpetuities and Accumulation Acts 1964 and 2009 do not apply in Scotland. Under the new Trusts and Succession (Scotland) Act 2024, there are no restrictions on the accumulation of income.

There could be advantages in creating overseas trusts (from a tax perspective) where the settlor or beneficiaries are non-UK domiciled or resident.

Not all countries recognise trusts. If an overseas trust is to be created, it may wise to do so in a country where the legal system is similar to that in the UK, e.g. the Channel Islands, Gibraltar, the Cayman Islands, etc.

Creating a trust with foreign resident trustees will usually be treated as a transfer of value for IHT purposes. Whether it is classed as a chargeable transfer will depend upon various conditions, such as:

Whether any general IHT exemptions can apply

The property may be excluded pr...

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After 6 April 2017, an individual will be deemed domiciled for IHT purposes if they have been resident in the UK for at least 15 years out of the previous 20, ending in the tax year in question (it was previously 17 out of 20).

The new rules also state that if an individual changed their domicile from UK to a domicile of their choice elsewhere, they will be deemed domiciled if they have been resident in the UK in at least one out of the two previous tax years (the ‘residence condition’).

There will therefore be no change for long-term residents who created trusts while they were non-UK domiciled and subsequently become deemed domiciled, but for a UK domicile who created trusts after becoming domiciled elsewhere, the assets settled into those trusts will not be excluded property if the settlor meets the ‘residence condition’.