Export Charge issue

I have a trust which had a mixed trustee pool for UK tax residence purposes. The Settlor, who was also a trustee, was tax resident in the UK and UK domiciled. The remaining 2 trustees both non UK tax resident.

The Settlor passed away in July 2022, resulting in the trust becoming non-UK tax resident as only non-UK resident trustees remained.

Under s81 TCGA 1992, this generates an export charge on the date of death.
Instead of appointing a new UK resident trustee within 6 months of death, the remaining trustees actually wound up the trust in September 2022, distributing the trust fund out to the beneficiaries.

As no UK tax resident trustee was appointed within the 6 month period, does the export charge still remain outstanding, or has anyone come across any case law where HMRC have waived this charge where the trust is wound up in the 6 month period as it was not ‘exported’ to avoid tax and would be an unfair result if the charge was imposed.

The trust is a discretionary trust, with the only asset being a life assurance policy which paid out on Settlor’s death.

I’m unaware of any such “waiver”.

Whether or not exportation was effected to avoid tax is irrelevant to the charge under TCGA 1992 s80.

Malcolm Finney

Apologies if I am misunderstanding, but the export charge only applies to unrealised gains on which UK capital gains tax would otherwise be chargeable had the trust remained UK tax resident, so there is a capital gains tax charge. A maturing life assurance policy would generate a chargeable event gain that would be subject to income tax, not capital gains tax. Any surrender value at death (when the trust was exported) should surely be equal to what was paid out (or possibly less). Also would it not occur while the trust was still technically UK resident and so would be subject to UK taxation? Consequently I am failing to see what any such export charge would be calculated on as nothing appears to be subject to capital gains tax, although there may well be an IHT exit charge in addition to the income tax charge.
Maxine Higgins

An exit charge arises due to a deemed disposal and re-acquisition by the trustees immediately before becoming non-UK resident of assets constituting the settled property; such charge does not need to give rise to a CGT charge. It is clear that were the settlement asset to be an interest in a non-reporting offshore fund, on trust exportation a gain would be realised by the trustees (on the deemed disposal and re-acquisition) albeit then subject to income tax.

Wrt non-qualifying life policies the non-qualifying life policy is an asset of the settlement (albeit not a chargeable asset; TCGA 1992 s 210(2)).

Gains arise on such life policies where chargeable event gains arise [ITTOIA 2005 s.484]. I’m not convinced that on the trust exportation a chargeable event gain arises, without which no tax charge arises.

Maybe someone else has had actual experience to draw upon.

Malcolm Finney

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Thank you all for your input, I believe I now have my answer.