HMRC Exempts Childrens Trusts From New Tax

by Robert Lee, Tax-News.com, London

27 March 2007

The UK's Society of Trusts and Estates Practitioners has welcomed HMRC’s recognition that trusts for children will not be subject to a new tax charge. Last week STEP received a letter from HMRC recognising that so-called “bare trusts” for children would be treated in the same way as bare trusts for adults.

John Riches deputy chairman of STEP said: ”HMRC has now dispelled fears that bare trusts for children would be subject to the more convoluted new trust rules and a 6% tax charge. It is clear that those who wish to make gifts into bare trusts for children will not be at risk of a 20% tax charge levied on gifts to more complex trusts.”

Complex changes made to trusts in last year's budget has led to advisors recommending many families move to simpler trusts arrangements, so called “bare trusts”. Bare trusts are commonly used to enable gifts to be made for minors who cannot easily hold property in their own name. A bare trust ensures the funds can be appropriately managed until the child reaches adulthood.

Concerns had been raised in correspondence between HMRC and professional bodies as to whether such trusts would, following the changes announced in last year’s Budget and enacted in the Finance Act 2006 be subject to the new trust rules.

HMRC’s letter to STEP confirms that they accept that bare or absolute trusts for minors should be treated in the same way as those for adults. This is wholly consistent with the treatment of such arrangements for capital gains and income tax.

The Society of Trust and Estate Practitioners (STEP) is the professional body for the trust and estate profession. STEP members come from the legal, accountancy, corporate trust, banking, insurance and related professions and are involved at all levels in the planning, creation and management of and accounting for, trusts and estates, executorship, administration and related taxes. STEP has over 12,000 members worldwide in leading finance centres. Membership covers common, civil and sharia law jurisdictions and is concentrated in the UK, the Crown Dependencies, Canada, the Caribbean and Europe.

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