Hoping someone on here might be able to assist or point me in the right direction…
A client of mine is a Trustee and Beneficiary of a Discretionary Trust. Testator was a UK resident and trust property is in the UK- client (daughter) lives in Poland and is not a UK resident for tax purposes. Can anyone provide some guidance as to the tax treatment of the Discretionary Trust? Would the trust fund be governed by UK tax laws? If so, I am assuming the trust will be subject to the special rates?
I did contact the HMRC Trusts and Estates division but received little help.
How many other trustees are there and where do they reside? That should guide you as to where the trust is resident.
As to the tax rules; irrespective of where the trust is resident, any UK source income will be taxable in the UK, and if discretionary, will be subject to RAT. The capital gains tax position will depend on the trust’s residence, although if the trust has been ‘exported’ a deemed CGT disposal will have occurred and any tax accounted for. It is also likely to be relevant property and subject to periodic IHT charges as the settlor was UK Dom, the trust is discretionary and it has UK situate assets.
Maxine Higgins
Citroen Wells
You need to look at the tax position in both the UK and Poland.
The UK position will depend on the nature of the income/gains, the number and location of the trustees and the nature of the assets. Fundamentally, you would expect UK tax to be payable at trust rates on UK source income.
The Polish position will have to be investigated. Worst case, they ignore the trust and the trustee is liable for full Polish tax with no credit for UK tax paid.
Also bear in mind that if the client is a sole trustee and has left the UK while trustee, the trust may have been exported and suffered a s.80 disposal of the trust fund.
To clarify, my client is the sole trustee- she lives in Poland and has done for a number of years, but trust property will in the first instance be within the UK- trust property constitutes both property and cash assets with the property likely to be sold in due course.
Am I therefore right in assuming that the trust will be governed by UK trust rates?
yes, and to the extent that there is any rental income arising from the UK property, the trust should register under the NRL (non-resident landlord) scheme.
If there was a 2016/17 tax liability then, if it has not already done so, the trust should also register on the new ‘trust register’ by 5 March 2018.
As and when the property is sold, if it is residential, an NRCGT return will also be required, within 30 days.
As noted above, your client should also obtain Polish tax advice.
If your client is the sole Trustee and is non UK resident, the Trust will also be non UK resident. This will mean the UK will only have taxation rights over UK sourced income (and subject to tax at RATs) and sales of UK residential (currently) property. As Max has said, if the Trust has previously been UK resident, an exit charge would have occurred.
You will also need to check the Polish tax position.