Family trusts

By THIS IS MONEY
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I'M a beneficiary of a family trust fund held in South Africa. I have been resident in the UK for the past 12 years. What tax implications will there be on me bringing my inheritence share to the UK once the trust is dissolved? PB, Cardiff

Maurice Fitzpatrick at accountants Numerica says: The taxation position of anything to do with trusts is invariably complex, which reflects the fact that the main motivation behind the setting up of a trust is to avoid tax. I will make the following assumptions regarding your position:

1. The original settler of the trust was domiciled (lived most of the time) outside the UK at the time the money or assets went into the trust
2. You are domiciled outside the UK
3. The trust is a discretionary trust which means the trustees have power to accumulate income and gains within the trust
4. Income and gains have been accumulated in the trust
5. None of the trust assets is situated in the UK
6. The trustees of the trust have always been resident outside the UK
7. You are not the original settler of the trust

In general terms, the three UK taxes to be considered when breaking a trust and distributing the assets to the beneficiaries are inheritance tax (IHT), UKcapital gains tax (CGT) and b) UK capital gains tax (CGT) and UK income tax.

No IHT liability will arise either on you or the trust since the trust assets are regarded as 'excluded property' for IHT purposes, being non-UK assets in a non-resident trust established by a non-UK domiciled individual.

Where the trust is broken and assets are distributed to the beneficiaries, part or all of any previous capital gains generated within the trust can, in certain cases, be attributed to the beneficiary who receives assets from the trust. So they can end up having to pay UK CGT on gains originally made by the trust. However, this does not apply where the beneficiary is and remains non-UK domiciled. In other words, based on the assumptions set out above, no UK CGT should arise on you.

With regard to income tax, again where a trust is broken up and assets are distributed to a UK resident beneficiary, then in some cases an income tax charge can arise on the beneficiary in respect of income previously accumulated in the trust. In your case, in order to avoid any danger of such a charge arising, it is essential that you do not bring any assets which you receive from the trust into the UK.

This whole area is exceedingly complicated and, regardless of whether the sweeping assumptions I have made are correct or not, you, the other beneficiaries and the trustees should seek UK and South African professional tax advice. Indeed, under normal trust law, the trustees would probably be in breach of trust were they to fail to do so.

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