Treatment of commonly used trusts

Key points

• Lifetime interest in possession trusts and discretionary trusts are subject to the relevant property regime for inheritance tax purposes.
• For discretionary trusts the adverse effects of the regime may be worth the flexibility protection and control they afford.
• Non-resident trusts are used for legitimate reasons that may have nothing to do with tax avoidance.
• The definition of ‘vulnerable person’ should be simplified to allow more people to qualify for vulnerable beneficiary trusts.

In November 2018 the government launched a consultation inviting views on the principles that it believes should underpin the taxation of trusts: transparency fairness and simplicity. After the submission of stakeholders’ responses to the consultation practitioners and clients with involvement with trusts now await the government’s proposals.

It is therefore an apposite moment to consider their current tax treatment and ways this might be reformed. The focus of the government’s consultation is primarily the tax –...