Chancellor sends tremor through trust industry

NEW legislation proposed by the UK Government, while not specifically targeted at local fiduciary companies, may have an impact on their business. Alison Vine, senior tax manager at Ernst & Young, believes that planned changes to the law are part of a number of measures the government has introduced aimed at tightening tax laws affecting trusts.

What is clear is that these proposals were completely unexpected and have caused widespread concern in the industry.

Representations by various parties have been made to the government.

The legislation proposed by Chancellor of the Exchequer Gordon Brown in a Finance Bill on 7 April specifically targets accumulation and maintenance and interest in possession trusts.

'Unfortunately, these are two of a number of types that the island offers. I am not convinced the impact of the proposed legislation will be catastrophic, but at the same time it is not good,' Mrs Vine said.

These types of trust were created in large numbers during the boom in the finance industry and used predominantly in relation to inheritance-tax planning.

'In the late 1980s, these were the trusts being exported to Guernsey. It was a fairly significant amount, but fewer have been created recently.'

The crackdown by the UK Government on tax loopholes appears to have forced offshore trustees to develop their business abroad.

'In comparison, not a huge amount of business is being done out of the UK now.

'The UK has done an awful lot to reduce the attractiveness of trusts from a tax perspective and this appears to be another measure,' said Mrs Vine.

'I would suspect that this used to be the traditional trust business for the island, but trustees are now beginning to look further afield to foreign jurisdictions.

'There will still be new trust opportunities - in particular trusts for UK-resident non-domiciliaries and for individuals with no UK connections - but the competition to win this work is likely to get tougher.'

The proposed changes would give local businesses until 6 April 2008 to make amendments to their existing trusts and entail a considerable amount of additional work and cost.

'Trust administrators, lawyers and tax specialists will have a very busy period prior to 6 April 2008 reviewing all the existing A&M and IIP trusts to see what, if and how amendments can be made to protect the 'special' IHT treatment and implementing those changes,' she said.

Mrs Vine also thought that requests for creations of new trusts of this type were 'likely to slow to a very small trickle'.