At Ogilvy & Haart it’s our duty to keep our current and potential clients up to date with all the latest wealth management news, including what to invest in and which schemes to avoid like the plague.
There’s no denying that tax avoidance is a huge talking point and is very rarely out of the press, especially when so many celebrities seem to be caught using offshore accounts and tax-avoidance schemes to lower their HMRC bill.
But the lines are often blurred when it comes to using a Tax Trust. Which is why we want to set the record straight.
One question we’re often asked is whether the use of a Tax Trust constitutes tax avoidance, particularly in regard to the Umbrella Trust Structure. In essence, the following statement explains why it’s not.
“The Company wishes to establish and fund a trust-based incentives arrangement for a class of discretionary beneficiaries who, from time to time, have a commercial relationship with the Company and/or the trust. The trust is to be outside the provisions of Finance Act 2011 relating to ‘disguised remuneration’ and also outside Part 20 Chapter 1 CTA 2009 (restriction of corporation tax deduction for payments to EBT’s).
Therefore, the establishment and funding of the Trust cannot be characterized as constituting tax avoidance. The High Court of Justice has ruled that the use of Tax Trusts does not constitute tax avoidance: MacDonald (Inspector of Taxes) v Dextra Accessories Ltd and Others (2003). HM Revenue & Customs accepts and in any event is bound by this ruling.
The primary fiscal characteristics of the particular type of Tax Trust proposing to be used are that it excludes the provision of benefits to employees and directors (and past and future employees and directors) as a reward for, or in recognition of their employment. This has the consequence that contributions made to the trust by the Company are not subject to income tax. The other essential taxation implications of such a trust are as follows.
Section 143 and Schedule 24 Finance Act 2003, as amended by Section 245 FA 2004 (now Part 20 Chapter 1 CTA 2009) effectively specifies that a contributor should not obtain a corporation tax deduction for an employee benefit contribution until (and to the extent that) distributions are made by the Trust. Since the Company’s present, past and future employees (and their families) are specifically excluded persons under the Trust, these statutory restrictions will not apply. Contributions will, in principle, become deductible in the accounting period in which they are made.
Clients often find Tax Trusts a bit of a grey area, but as you’ve read above, a tax trust is a legally binding entity that is not used as part of tax avoidance schemes. In fact, they’re as above board as paying income tax and corporation tax.
Our advice to any body who’s confused about Tax Trusts or would like to find out more about how they can be of benefit to business, would be to arrange an initial consultation with one of our highly skilled and experienced wealth managers.
In fact, it might be an idea to arrange a no-obligation consultation anyway to find out how to streamline your accounts and see where we can help you save tax and reinvest in your business.
Simply call the team on 0333 444 0820 or email email@example.com and one of our team will be in touch to arrange an appointment at your earliest convenience.