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In Trevor Smallwood Trust v HMRC [2010] the Court of Appeal confirmed that a Mauritian trust that has been arranged and orchestrated in the UK was ultimately controlled and managed in the UK.

  • Mr Smallwood was the settlor and beneficiary of two trusts established for himself and his family in 1989 and he also had the power to appoint trustees.
  • The trusts was based in Jersey and it held shares in companies and the shares grew in value.
  • There would potentially be a capital gain of over £6million on their disposal.
  • In order to avoid UK capital gains tax (CGT), the taxpayer appointed trustees in Mauritius. He relied on the double tax convention between the UK and Mauritius which has the effect of transferring the right to tax the gain in Mauritius, where the trustees were based at the time of the disposal.
  • The trustees sold the shares and made gains.
  • Shortly afterwards the taxpayer and his wife, who were based in the UK, both became trustees.
  • HMRC raised an assessment on the trust for £2.7million. The taxpayer appealed.

The commissioners found for HMRC: the place of effective management (POEM) of the trust had been where Mr Smallwood was located. He directed and orchestrated the trust.

Due to the sums at stake the case went all the way to the Court the Appeal where the commissioner’s findings were confirmed.

Links:

Non-resident trust guide

HMRC v Smallwood and another [2010] EWCA Civ 778

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