Place of effective management of trusts

The taxpayers were settlors of family trusts that had engaged in a ‘round the world’ tax planning scheme which aimed to avoid UK CGT on disposals of shares on a company flotation. The scheme could only work if the place of effective management (POEM) of the trusts was Mauritius at the time of disposal.

A similar scheme was found to have failed by the Court of Appeal in CRC v Smallwood and another [2010] STC 2045.

The First-tier Tribunal held that the POEM of the trusts was the UK. The taxpayers appealed saying the First-tier Tribunal had applied the wrong test to identify the POEM.

The Upper Tribunal carried out a detailed analysis of previous cases including Smallwood and Wood v Holden 78 TC 1. It accepted that Smallwood was a case where there was no usurpation of the trustees and that the majority of the Court of...