Trust Disclosure Regime - Insights From The First Year

After the introduction of the Trust Disclosure rules in March 2022, in November 2023 Inland Revenue released a high-level summary (in the form of a 40-page report) of insights from the first year of reporting. While tax advisors and clients alike may have begrudgingly completed the disclosures initially, the statistics may prove to be interesting.

The stated purpose of the trust disclosure rules was to provide insights into the way trusts are used, and to ensure compliance with the 39% individual tax rate. The information gathered included reporting on details of settlors, individuals with powers of appointment, beneficiaries, and various financial information. 

A recurring theme throughout the report was the level of errors, but not surprising given the complexity of the disclosure rules and it being the first year. Of the 226,000 IR6s received, the errors included:

•    26,000 trusts that provided no financial information.
•    49,000 trusts that provided no settlor details.
•    300 trust beneficiaries who owe student loans that failed to disclose their trust distributions.
•    1,400 Working for Families recipients that failed to disclose their trust distributions.

Other key insights into trust income and assets included:

•    Total trust assets amounting to $470 billion, which was up from $240 billion reported in 2016.
•    $91 billion of trust assets comprising shares and $191 billion comprising land and buildings.
•    16,000 trusts reported untaxed realised gains of $14b. This compared to 5,000 trusts which reported $4b in untaxed realised gains in 2016.
•    The amount of beneficiary income allocated to individuals earning over $180,000 dropping from $900 million in 2020 to $450 million in 2022.

Greater scrutiny of Trust tax affairs is expected, especially as the Government has provided additional funding to complete audits and investigations.