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. This report, conducted in 2016, found that the key motivating factors being 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:

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;

  1. 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 30 January 2019, 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

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