Trust Taxation, 3rd Edition

Trust Quarterly Review
Volume 7, Issue 1 2009
Review by Arabella Saker TEP, Overy & Allen LLP

When writing reviews, I am always overcome with envy for the pithy style of the legendary Dorothy Parker, one of whose most celebrated (theatre) reviews ran: 'House Beautiful is play lousy'. However, it is not to be - and in any event, Trust Taxation is a fantastically helpful book that deserves more than a few words of praise.

The first edition of Trust Taxation was a blessing to practitioners, emerging as it did not long after the Finance Act 2006, and designed to help us all navigate through the difficult new legislation. Since then, of course, the Finance Act 2008 has done so much more to change the way in which trusts, and their settlors and beneficiaries, are treated for tax purposes. The Finance Act 2008 was an extraordinary piece of legislation, which in places appears so dogged in its Healeyesque determination to hear some pips squeak that one is reminded of A.P.Herbert's marvellous statement: 'People must not do things for fun. We are not here for fun. There is no reference to fun in any Act of Parliament' . The legislation is, as readers will know, both voluminous and complex, and the already impenetrable nature of the first draft did not benefit from having been subject to a number of amendments and last-minute policy tweaks, and certainly not without the publication (to date) of updated explanatory notes. Clarity of understanding has not been easy to achieve against this background. Thus it was with enormous gratitude that I received a review copy of the 2nd edition, and settled down to read the views of these two outstanding authors. 


One can always have confidence that after Emma Chamberlain and Chris Whitehouse have dissected a piece of legislation it will seem more logical (despite, apparently, the best efforts of its creators), and that their advice will be full of practical suggestions. This book does not disappoint. Even the preface contains a fascinating critique of changes to trust taxation, analysing how well (or otherwise) recent Finance Acts have met the criteria of transparency, fairness and simplicity. We are, of course, where we are, but it is nonetheless interesting to consider these principles. The book as a whole also benefits from the unique insights that Emma Chamberlain gained while assisting HM Treasury in correcting some of the anomalies in the early drafts of FA 2008. 


The changes in FA2008 have, of course, led to many of the chapters in the first edition being expanded. The 2nd edition weighs in,11 a shade under 1250 pages, in comparison with the 830 pages of the 2006 edition. The amount of tax legislation over the last ten years or so has roughly quadrupled, with a notable increase in the last 18 months, but it would be unfair to credit the increased girth of Trust Taxation entirely to the Government. Rather, Chris and Emma have gone to considerable lengths to revise the text, ensuring that it is up to date, addresses the issues in helpful but not excessive detail, and gives additional worked examples. Certain chapters have been expanded to address areas which are new, or related - for example, the chapter on excluded property now includes more detail specific to non-UK domiciled individuals. 


Trust Taxation achieves an elegant balance between the tax rules where trustees, settlors and beneficiaries are resident and/or domiciled in the UK, on the one hand, and the different rules which apply, on the other hand, where the settlor and/or beneficiaries of an offshore trust are claiming the remittance basis. A number of sections are particularly focused on non-UK domiciled individuals. Now that remittance planning requires even more care than it did until 6 April 2008, perhaps the most frequently asked question from those moving to the UK is how best to fund the purchase of a family home (given that offshore mortgages are harder to service without triggering a remittance). Chapter 35 now contains a much-extended, very helpful section on various ways for non-UK domiciled individuals (or their trustees) to purchase property in the UK for use as their main residence. 


One issue likely to be of considerable interest to offshore trustees is the question of rebasing elections. It is a common misconception that all offshore trusts are eligible to elect to rebase their assets for capital gains tax (CGT) purposes. Many will have accumulated income pools which mean that they are unable , for some years (if at all in the foreseeable future) to make such an election, since it is a pre-requisite of such elections that a capital payment is made to a UK-resident beneficiary, which may be impossible if there is accumulated income against which the payment must first be matched. Even then, there are difficult issues to weigh up when deciding whether or not to elect to rebase. The rules, and their advantages and pitfalls, are explored carefully in this book. 


The book also benefits from having had some chapters divided into more than one, making it easier to navigate, and allowing the authors room for more explanation of distinct areas. For example, a chapter on actual and deemed disposals by trustees is now more helpfully dealt with as two separate chapters . Under 'actual disposals' there is a particularly useful section describing how trusts may be CGT winners or losers following the abolition of taper relief and indexation; this is bound to be an essential quick reference guide when advising trustees looking to dispose of assets. 


Among the most welcome new sections is one on offshore income gains. I hope I am not alone in admitting that this is a topic I regard as particularly tricky. The authors have miraculously distilled the rules relating to offshore funds into text so coherent that the legislative draftsmen should blush (assuming, which I fear is not the case, that they intended it to be comprehensible in the first place). This section usefully includes a forwardl ooking overview of new rules to be introduced in 2009, by which funds with 'distributor' status will instead be required to report their income. 


I found the first edition exceptionally helpful in considering the tax issues facing settlors and beneficiaries in particular, and the 2nd edition - equally if not more valuable - has already taken up permanent station on my desk. There are so few books that focus specifically on this increasingly tricky area of tax law,and Emma Chamberlain and Chris Whitehouse excel at rendering complex legislation in plain and practical English. In homage to Dorothy Parker, by way of summary, might I suggest 'Trust Taxation is book terrific'?


Arabella Saker TEP is a partner in Allen & Overy LLP and one of the editors of Trust Quarterly Review.