Autumn Budget 2017: Offshore Trusts - Changes to the treatment of capital payments

In September 2017, changes that are due to be introduced from 6 April 2018 in relation to benefits received from offshore trusts were issued.
They generally represented various proposals that were left out of the significant changes introduced for 2016/17 but were perhaps considered to be too difficult to introduce so quickly.

The main change will be that where a capital payment is made to any non-UK resident on or after 6 April 2018, it will not reduce the pool of ‘stockpiled’ trust gains. Therefore, where there are significant stockpiled gains, including currently unrealised ones, and there are non-UK resident beneficiaries, trustees may want to consider making distributions this tax year to those who are non-UK resident to avoid potentially very inequitable results for the UK beneficiaries.
 
The next material change is where capital payments or benefits are received by individuals who do not pay tax on the distribution (because they are either not UK resident or are not UK domiciled and claim the remittance basis and do not remit the funds) and that person then makes an onward gift to a UK resident. In this case, the UK resident recipient will be treated as if they had received a capital payment or benefit from the trust equal to the amount of the gift and will be taxed accordingly. We are concerned about this rule because there is already a host of anti-avoidance to prevent diverted appointments, so in reality the only people who will be caught out by this will be those who have not taken tax advice, and indeed at the time may not have needed to. This will give rise to a significant amount of accidental non-compliance (but see our section on the extension of the reporting period for errors to 12 years).
 
The final change will be where capital payments or benefits are provided to a close family member of a UK resident settlor, they will be taxable as if they were received by the settlor. This will stop the use of personal allowances, exemptions and lower marginal tax rates for members of the settlor’s family so make the most of it this year.
 
 
 Further information on the impact of the Budget can be found here.
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