Tax Risk for Discretionary Trusts

Recent Changes to the Duties Act impose stamp duty and land tax surcharges on Discretionary Trusts, including Testamentary Discretionary Trusts, where there is a potential for a beneficiary to be a “Foreign Person” (for the purposes of the Duties Act).

Even where there are no actual “Foreign Persons” as beneficiaries of the trust, if there is a potential for a foreign person to become a beneficiary in the future, the Trust will now be liable for surcharge duty and surcharge land tax on any land held or purchased by the Trust.

Amending a Trust

There is a grace period for current Trusts to be amended to irrevocably exclude foreign persons. If a Trust is amended on or before 31 December 2020, the surcharges may be avoided. If the Trust is not amended, then surcharge duty and surcharge land tax will apply retrospectively for property transferred or held by the trust since the surcharge was introduced. This could mean significant back payments for stamp duty and land tax may become payable by Trusts if their Trust Deeds are not amended.

So where does this leave you?

If you own property in a Discretionary Trust, you MUST have your trust deed reviewed. If amendments are needed, they must be made on or before 31 December 2020.

If you need assistance with your Trust, please contact our Commercial Business Team here.