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Rebasing deadline imminent for trusts

By admin on Tuesday, January 12, 2010
Filed Under: Finance & Business

Guernsey News, 12 January 2010 – TRUSTEES are being advised that the deadline is looming for “rebasing” some offshore trusts under rules introduced by the 2008 Finance Act.

Some trusts must elect to rebase by 31 January this year in order to minimise beneficiaries’ capital gains that will be subject to UK capital gains tax (CGT), warns PKF.

The process surrounds the original cost of an asset held within a trust at 5 April 2008. If the asset is later sold for a higher price the gain could be subject to CGT when matched to benefits enjoyed by beneficiaries. Rebasing the assets may be beneficial if the April 2008 asset values are higher than their original costs and therefore a smaller proportion of the gain will be taxable.

This largely applies to trusts held by non UK-domiciled beneficiaries.

For some trusts the time limit of 31 January may have been triggered by a capital payment made between 6 April 2008 and 5 April 2009. A capital payment may include the rent-free occupation of a property held in a trust or the receipt of an interest-free loan from the trust.

There is no tax downside to electing for rebasing, however, for some trusts, for example where the beneficiaries are living in the UK but are planning to move away, rebasing may be unnecessary and simply cause a lot of additional and time-consuming paperwork.

John Bradley, tax director at PKF, said: “I would expect the larger trust companies to be aware of rebasing but it may not be on the radar of the smaller ones.

“At PKF we are promoting a cautious approach; when in doubt make an election, as the risks associated with not doing so could be significant for both the trustees and the beneficiaries.”

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