Trustee residence: STEP publish guidance agreed by HMRC

Joint bodies agreed guidance seeks to clarify trust residence rules by way of case studies

Guidance to clarify when trusts are to be considered UK resident has been published jointly by the ICAEW Tax Faculty, the CIOT and STEP.

The guidance note, which has been agreed by HMRC, covers the practical application of the trust residence rules. By way of example case studies it seeks to illustrate the practical application of the legislation and develop some of the principles included in HMRC’s own guidance material dated 1 July 2009.

The rules for determining whether a trust is UK resident involve considering inter alia whether the trust is operating through a permanent establishment or branch or agency in the UK. Permanent establishment is an OECD concept which applies to corporates. The trustee residence rules for income tax and capital gains tax respectively are in section 475(6) Income Tax Act 2007 and section 69(2D) Taxation of Chargeable Gains Act 1992 and were introduced in Finance Act 2006 as part of trust modernisation.

The guidance arises from the concern shared by ICAEW, CIOT and STEP that the Finance Act 2006 trust modernisation changes to the rules governing the residence of trusts lack certainty and clarity. The rules do not even provide consistent treatment for different types of trustees and the uncertainty as to how the rules work is deterring investment in the UK and the use of UK trustees and trust specialists.

In parallel with clarifying with HMRC how the current rules apply in practice, the three bodies are engaged in discussions with HM Treasury and HMRC about how the rules for determining trust residence might be improved.

ICAEW TAX FACULTY, CIOT AND STEP GUIDANCE NOTE (PDF)