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Update regarding tainting of “protected trusts” from 6 April 2017

27 Mar 2017

From 6 April 2017 where a UK resident deemed domiciled settlor adds property to a trust they will ‘taint’ the trust under the new deemed domicile rules that come into force from 6 April 2017. This will result in the settlor being liable to tax on the income and gains of the trust on an arising basis. This includes the situation where a settlor has made a loan to the trust on non-commercial terms. Transitional provisions are now in place such that the requirement to pay a commercial rate of interest to avoid tainting the trust for the current year is waived. However, before 6 April 2018, the loan must be repaid in full together with outstanding interest or made subject to fully commercial terms for the year ending 5 April 2018 and subsequent years. HMRC’s statement can be found here. HMRC have also confirmed that they will not regard a settlor’s failure to revoke a trust to safeguard the position of beneficiaries as an addition of property or value that taints the trust.

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