Appointing an Overseas Trustee

I wonder if anyone would be able to help…
I have an estate close to finalising where we have ascertained the amount of the 1/3 of residue passing to a discretionary trust. The share on DT was set up chiefly as one child of the deceased is not overly competent at managing money. The aim was to benefit this child where possible and then on his death (he has no issue) to pass between his brother (who is Executor with one of our partners) and sister (or their children) equally. They were the other beneficiaries of the estate.

The Executor son wishes for our partner to step down and his sister be appointed prior to usual registration of the Trust. She is resident in Australia although was UK born, but suspect she is now resident/domiciled in Aus given she has been there for a long long time.

If I appoint the sister as trustee - am I exporting the Trust for tax purposes or falling foul of any rules? I have looked at various guidance which all seems to concentrate on where all the trustees are overseas, but in my case the other is UK and intends to be for rest of lifetime.

Any help greatly received. I’m sure there must be some guidance but as said I’m struggling to find where it relates to one over seas trustee only. Assets will be cash, possibly invested in time in UK.

Many thanks.

Louisa Bradberry
Ashtons Legal

The HMRC TSE Manual states:

If at any time at least one trustee is resident in the UK and at last one is not, the body of trustees is resident in the UK only if the settlor of the trust was resident, ordinarily resident or domiciled in the UK at any time when he or she introduced property into the trust.

Accordingly, if the deceased was UK domiciled at the time of their death, having a UK and a non-UK trustee will not, of itself, export the trust. However, should the UK trustee be the first to die, there will be an immediate “export” of the trust for CGT purposes that cannot be remediated.

In addition to the tax risk, there is the logistical issue of completing documents, as the trustees must act unanimously (which will mean all of the trustees must sign any necessary documents). Many organisations will only accept original signatures, not facsimiles.

There is also a conflict of interests. Even if the trust instrument incorporates the STEP Standard Provisions, under both versions siblings cannot be “independent” in relation to each other. If the common law conflict rules apply, then whilst the brother, as an original trustee can exercise a power or discretion in his own favour, the sister, not being an original trustee, cannot without giving rise to a breach of trust.

I discussed this situation in the following article: https://www.lawskills.co.uk/articles/2017/07/beneficiary-trustees-solution-strangulation/

Paul Saunders

One UK resident trustee and one non-resident trustee gives rise to a so-called “mixed trust” in which case if the settlor (ie in this case the deceased) was resident in the UK OR UK domiciled in the UK at. the date of making the settlement (in this case on death).

Hence the trust should remain UK resident.

Regarding Paul’s comment above, should the UK resident trustee die (leaving only the non-resident trustee) the trust will have been exported (ie become non-resident) thus in principle precipitating a UK CGT charge on the trust assets (ie on the deemed gain arising from a deemed sale and acquisition by the trustees of trust assets). However, in such a case the CGT charge is mitigated if within 6 months of exportation the trust becomes UK resident again; the CGT charge is then restricted only to gains arising on any trust assets disposed of between date of exportation and date of UK re-acquisition (hence if no such disposals were made there are no CGT consequences of the “accidental” exportation of the trust).

However, it would make sense for at least two UK resident trustees to be appointed if a non-resident trustee is to be appointed.

Malcolm Finney