Offshore trustees & UK resident beneficiaries: Distributions before the UK’s 30 October Budget?

This is likely to mean that taking action before then can minimise any CGT due on distributions made to UK resident beneficiaries, as was the case in 2010.

Where trusts have ‘stockpiled’ gains realised in earlier tax years that can be matched to ‘capital payments’, the CGT due is increased by a surcharge, which exaggerates the potential benefit of taking advantage of the current relatively low CGT rates. For instance, if the CGT rates are aligned with the income tax rates, the top rate of CGT, assuming the maximum 60% surcharge applies, will be an eye watering 72%.  To put that in context, on a £1m appointment, that would be a £400k increase in the CGT payable, leaving a net post tax receipt of only £280k. Even if, the top rate of CGT only went up to 30%, then where the full 60% surcharge applies, the top marginal rate of CGT will be 48% i.e. more than the current top rate income tax.

The fact that the top marginal rate of CGT (i.e. including the full 60% surcharge) is currently 32% illustrates the potential advantages of taking action now to minimise beneficiaries’ CGT liability and maximise their net after tax receipt.

Therefore, we recommend trustees consider:

1. Making capital payments to UK resident beneficiaries, ensuring they are made before the Budget to maximise the possibility of locking in the current CGT rates; and
2. If there are insufficient stockpiled gains to match with any such capital payments, for the trustees to sell assets to realise sufficient gains to cover the capital payments made before 30 October 2024.  If this is not possible, we would be happy to discuss more complex planning such as the creation of sub-funds before 30 October 2024 and then deciding after the Budget whether to make the sub-fund election.

The position for UK resident, non-UK domiciled remittance basis users is more complex, as the rate of CGT is set when the remittance to the UK is made. However, if capital distributions are made before 30 October 2024, then this does give the beneficiary the option of subsequently deciding whether to claim the remittance basis once the Budget clarifies:

1. What the rate of CGT will be increased to;
2. When the increase will come into effect; and
3. Whether stockpiled gains are brought within the Temporary Repatriation Facility (TRF).

Also, one option for remittance basis users who have already received capital distributions that have been matched with stockpiled gains, is to ensure that they remit the capital payment to the UK before 30 October 2024 to maximise the possibility of locking into the current CGT rates.

As ever with ‘offshore’ trust structures, the UK tax provisions are complex and we highly recommend bespoke tax advice is taken so that any actions are tailored to the specific circumstances of your trust structure, and the respective beneficiary’s circumstances. However, given the limited time before the Budget, we wanted to make you aware of potential planning opportunities and we would be happy to arrange a call to discuss how the above may apply to your trust structure. For further support and advice, email James Walker.