Quilter 15 Anti-avoidance rules – income tax All UK trusts are subject to anti- avoidance rules designed to prevent abuse of the tax laws. These cover situations where a settlor or their spouse has retained an interest in the trust. The definition of ‘spouse’ excludes a former or separated spouse and the widow(er) of the settlor. Since 5 December 2005, civil partners registered under the Civil Partnership Act 2004 are also included. The general effect of these rules is that the trust assets will be considered as still being owned by the settlor for income tax purposes. Therefore the settlor will remain personally liable to tax at their highest rate on any income received by the trustees. Investments which are non-income producing, for example investment bonds, can be more attractive therefore for settlors and trustees in circumstances where anti-avoidance measures are applicable. Where a parent creates a trust for their unmarried minor, there is a danger that the settlor will be liable for tax on the income. If trust income is used for the benefit of such a minor, for example under a discretionary trust, this can be sufficient on its own to bring the anti-avoidance rules into play. If the trustees use their discretion to make an income payment of more than £100 to a minor of a living settlor, then the parental settlor will be liable for tax on the whole amount If, rather than paying out the income, the trustees decide to accumulate it and then subsequently use their discretion to pay capital to such a minor, that payment will be treated as an income distribution, up to the amount of available undistributed income in the trust, and the parent settlor will still be taxed accordingly. Wherever possible, it may be more advantageous for the income to be accumulated within the trust and capital distributions deferred until the minor becomes an adult. For this purpose, the term minor includes an adopted, step or illegitimate child. Following the introduction of a flat rate of tax for capital gains, the anti-avoidance legislation relating to CGT has been repealed. Trustee Registration Existing trusts must register by 1 September 2022 (or within 90 days of creation, if longer). Trusts created on or after 1 September 2022 must register within 90 days of creation. The register must be updated within 90 days of any changes to the trust. Example - changing trustees. Taxable Trusts In order to report and pay UK tax, the trust will require a Unique Taxpayer Reference (UTR) Trusts with a UK tax liability (such as CGT, IHT, Income) must update the register by 31st January following the end of the tax year. HMRC trust register A trust must register with HMRC’s Trust Registration Service if it is considered UK resident or has a UK tax liability, unless an exemption applies. https://www.gov.uk/trusts- taxes/registering-a-trust