Deemed Domicile – income and capital gains tax – trust protections confirmation from HMRC re additions to trust property

Please see the email below from HMRC to CIOT, which I have permission to circulate and which may be of interest to subscribers.

Jeremy Woolf
Pump Court Tax Chambers

To CGT & II, Succession Taxes
Cc Technical Committee

Draft provisions for Finance Bill 2017: Deemed Domicile – income and capital gains tax – trust protections
HMRC confirmation

Please see below the text of a confirmation from HMRC received today in relation to ‘tainting’ of the protections by an addition to trust property. We understand that the terms of this confirmation including the transitional rule referred to in HMRC’s paragraph 1 below will apply also to the income tax trust protection provisions. As noted this confirmation can be shared, we will post it on the CIOT website.


We understand from talking to stakeholders that, given the little time available between now and the introduction of the new trust protection rules, there is concern about what constitutes an addition to trust property and in particular whether or not an outstanding repayable on demand loan entered into before an individual becomes deemed domiciled on 6 April 2017 will taint the trust. The statement below is intended to provide some clarity.

  1. A repayable on demand loan which was made directly or indirectly to a relevant trust prior to 6 April 2017 on non-commercial terms e.g. at a low or nil rate of interest and which remains outstanding on that date will generally be regarded as a provision of property for the purposes of the settlement. Consequently, where after 5 April 2017 a loan has not been repaid or adjusted to commercial terms, the condition at new sub paragraph 5A(1)( e) would be met. The provision at 5A(1)( e) will apply equally where the loan was initially for a fixed period but falls to be repaid after 6 April 2017 such that it becomes a repayable on demand loan. There will however be a transitional provision so that the condition is not regarded as met where, before 6 April 2018, the loan is either repaid in full together with any outstanding interest or made subject to fully commercial terms, including a commercial rate of interest payable at least annually for the year ending 5 April 2018 and subsequent years and in addition interest at a commercial rate or a sum in lieu thereof has been paid in respect of the year ended 5 April 2017.

  2. Certain trusts require the settlor to have the power to revoke the trust to safeguard the position of beneficiaries. HMRC will not regard the failure to exercise such a power the same as an addition of property or value to the trust and therefore it will not cause the trust to lose its protection.

I would be grateful if you would share this with interested parties representing other professional bodies, colleagues and members.

With Kind regards


Tony Zagara| Specialist Personal Tax, Assets and Residence Policy