UK Residents and Onward Gifting
The legislation introduced in Finance Act 2018 means that it may no longer be possible for an individual to receive a gift without considering the UK tax legislation, especially if there are Family Trusts in the background. We note here that our previous short article which considers whether Trusts are still a useful succession-planning tool still stands good, however, HMRC do not like them to be used to gain an unfair advantage for some UK residents over others.
In the past it was possible in certain circumstances for say a non-UK taxpayer to receive a distribution from a trust and in turn they could gift this to a UK taxpayer, who received the funds as capital in their hands. We would add here that it has always been the case that if the two steps were pre-ordained and designed to frustrate the aims of the UK Exchequer to collect tax on the eventual recipient the first step would generally be disregarded for tax purposes.
The legislation has taken this presumption a step further and there are now specific situations where the first step is disregarded. This therefore means that there is less discretion on the part of the eventual recipient to decide whether or not they are taxable on the indirect receipt of funds from the trust. This is commonly referred to as the ‘onward gifting’ rule or the ‘anti-conduit’ rule.
Essentially, where there are arrangements or there is an intention to pass either directly or indirectly all or part of the distribution or benefit from a non-taxpayer to a taxpayer within three years of the first transfer or benefit being received, the eventual recipient needs to consider their tax position.
Whilst the legislation is intended to bring certainty to a number of situations, there are still grey areas around when the intention provision takes effect. In the most simple of examples, if a trust makes an appointment to non taxpayer who then passes away leaving his estate to a UK individual, it should be possible to rebut the presumption of intention. There will also be other examples.
The key issue is that when making or receiving a gift it would be sensible to consider the wider UK tax issues that may arise in this connection.