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Changes to dis­cre­tionary trusts are com­ing into effect on the 31st of Decem­ber 2020 which may expose trustees to for­eign sur­charges.


A sur­charge rate on pur­chas­er duty and land tax has applied to a “for­eign per­son” in respect of res­i­den­tial land owned by dis­cre­tionary trusts since 2016. Pre­vi­ous­ly, tax­pay­ers hold­ing land in dis­cre­tionary trusts could avoid the sur­charge by not includ­ing for­eign per­sons as ben­e­fi­cia­ries.

Now, all trustees, ben­e­fi­cia­ries and poten­tial ben­e­fi­cia­ries will be assumed to be a ‘for­eign per­son’ unless changes are made to the deed.


What are the changes?

Trustees of a dis­cre­tionary trust that has acquired res­i­den­tial land will be deemed a for­eign per­son unless the trust deed specif­i­cal­ly out­lines that:

  • no for­eign per­son can be a poten­tial ben­e­fi­cia­ry, and
  • the trust can­not be amend­ed to allow a for­eign per­son to become a poten­tial ben­e­fi­cia­ry in the future.

If the terms have not been amend­ed to irrev­o­ca­bly exclude for­eign ben­e­fi­cia­ries in your dis­cre­tionary trust by the 31st of Decem­ber 2020, the trustee will be liable for the fol­low­ing for­eign sur­charges (in addi­tion to ordi­nary rates), such as:

  • 8% sur­charge rate of duty on dutiable trans­ac­tions involv­ing res­i­den­tial land that have occurred pri­or to 31 Decem­ber 2020; and
  • 12% sur­charge land tax in respect of the 2017, 2018, 2019 and/or 2020 land tax years.

Tes­ta­men­tary dis­cre­tionary trusts which do not pre­vent a for­eign per­son from being a ben­e­fi­cia­ry will also be sub­ject to for­eign sur­charges if the will or cod­i­cil is exe­cut­ed after 31 Decem­ber 2020.


What action do I need to take?

If you have a dis­cre­tionary trust in place which owns land, Dono­van Oates Han­naford are ready to assist with amend­ing your trust to exclude for­eign ben­e­fi­cia­ries from the class of ben­e­fi­cia­ries.

Con­tact Dono­van Oates Han­naford today if you require legal sup­port in rela­tion to the above top­ic.

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