UK To Increase Tax On Trusts

by Robert Lee, Tax-News.com, London

28 November 2008

A little-publicised proposal buried in the UK government's pre-budget report, announced earlier this week, will see the rate of taxation on trusts increased in 2011, a move which is likely to further erode their usefulness as an estate planning tool.

As a result of the changes, the dividend trust rate will increase to 37.5% from 32.5%, and the trust tax rate is to increase to 45% from 40%, effective from April 6, 2011.

According to law firm Withers LLP, the change means that most trusts will be treated for tax purposes as though they were the highest rate taxpayers, notwithstanding the actual amount of trust income or dividends received.

Commenting on the move, Christopher Groves, a partner at Withers's London office, observed: "This again is a continuation of the highly worrying trend of attacks on the tax treatment of trusts, which started in 2006 with the extension of the 20% inheritance tax charge to nearly all lifetime gifts into trusts and which reduces further their attractiveness for those wishing to provide in a responsible, safe and efficient manner for future generations."

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