HMRC has published a new consultation ‘The Taxation of Trusts: A Review’ considering whether the current system for taxing trusts meets the principles of transparency, fairness, neutrality, and simplicity.

The consultation has been launched in line with a commitment made by the government at the Autumn 2017 budget with the intention of:

  • Addressing any remaining opportunities to use trusts, in particular non-resident trusts, for tax avoidance or evasion;
  • Ensuring the approach to trust taxation does not result in unfair outcomes or other unintended consequences; and
  • Facilitating the straightforward usage of trusts where they are the appropriate legal mechanism.

The consultation is published alongside a research report about why people use trusts and has a strong focus on non-resident trusts. This report, conducted in 2016, found that the key motivating factors for the use of trusts is:

  • Protection from people: to protect assets from other people including relatives
  • Protection from taxes and other costs: IHT, and costs such as care home fees.
  • Control: A trust allows a settlor to secure their assets for a beneficiary but retain control.
  • Flexibility: trusts can be more flexible than a will.

No specific reforms have yet been suggested by the government. In the consultation they are seeking views and evidence on the following, and will consult on proposed specific reforms in due course:

Q1: whether the principles of transparency, fairness and neutrality, and simplicity constitute a reasonable approach to ensure an effective trust taxation system; including views on how to balance fairness with simplicity where the two principles could lead to different outcomes.

Q2: given that there is already significant activity under way in relation to trust transparency, whether there are other measures it could take to enhance transparency still further.

Q3: the benefits and disadvantages of the UK’s current approach to defining the territorial scope of trusts and on any other potential options.

Q4: the reasons a UK resident and/or domiciled person might have for choosing to use a non-resident trust rather than a UK resident trust.

Q5: any current uses of non-resident trusts for avoidance and evasion, and on the options for measures to address this in future.

Q6: the case for and against targeted reform to the Inheritance Tax regime as it applies to trusts; and broad suggestions as to what any reform should look like and how it would meet the fairness and neutrality principle.

Q7: a) the case for and against targeted reform in relation to any of the possible exceptions to the principle of fairness and neutrality detailed at paragraph 5.6 of the document;

b) any other areas of trust taxation not mentioned there that would benefit from reform in line with the fairness and neutrality principle.

Q8: options for the simplification of Vulnerable Beneficiary Trusts, including their interaction with ‘age 18 to 25’ trusts.

Q9: any other ways in which HMRC’s approach to trust taxation would benefit from simplification and/or alignment, where that would not have disproportionate additional consequences.

Responses should be sent by 28 February 2019 (extended from 30 January), by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it.

Links to our guides:

UK trusts

Non resident trusts

External link:

‘The Taxation of Trusts: A Review’

‘Exploring the use of trusts’ Ipsos MORI Research report