An alarmingly high number of trusts are being taxed at rates that are likely unnecessary, according to Canada Life. Newly released HMRC figures1 reveal that the trustees of some 90,000 trusts paid £445m in tax in 2016/17.
Neil Jones, ican Senior Technical Manager, Canada Life, said:
“This is truly unexpected. Trusts are a sound vehicle for passing on wealth to beneficiaries, but to produce this amount of tax means that vital tools like bonds aren’t being used in tandem with the trusts. Bonds can allow income tax to be deferred to a more tax advantageous time and may not even be assessed on the trustees.
“The growth may be a reflection of the use of DIY trusts without professional advice. A good financial adviser will be able to work out all allowances and the best way to structure the most appropriate trust. On the face of the evidence, that’s not happening and it’s making a tax gift to HMRC."
Chargeable gains are a key area of tax growth for trusts paying tax at the trust rates. These gains in the 2016-17 tax year were almost £1.5 billion [£1,460 million], a 16% rise on the previous year. At the same time chargeable gains for interest in possession trusts were £1,450 million in 2016-17, almost 50% [49%] higher than in 2015-16.