Following the Tax Day announcement that the Government would not conduct any holistic reform of the taxation of trusts, the CIOT has called for reform to the taxation of UK resident trusts to make them more attractive to foreign settlors (together with a sensible simplification of the way disabled persons’ trusts are taxed).
Currently, UK resident trusts are subject to UK taxation. As such, foreign settlors do not generally consider UK resident trusts as part of their succession planning, instead favouring more tax neutral jurisdictions. This is despite the fact that the stability, quality and impartiality of the English legal system is highly attractive to settlors looking to put in place arrangements that are expected to last for many decades.
Any reform to the taxation of UK resident trusts established by foreign settlors may not raise additional tax but will lead to opportunities for UK based professional trustees and investment managers, amongst others, providing an economic boost to the UK and additional employment opportunities. It would also strengthen one of the UK’s most successful exports: the English legal system.
Whether the Government has the capacity to embark on such a reform now remains to be seen. But in years to come, as the UK looks to forge a new role for itself, improving and expanding the global reach of the UK’s legal and financial sectors will become increasingly important to the success of the UK’s economy.