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In conjunction with the increase in the top personal tax rate to 39%, the government enacted new legislation requiring trusts to disclose much more detailed information to Inland Revenue from the 2022 tax year onward.
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Information to be disclosed is:
Financial statements will not be required from trusts which are registered as not active. Examples of non-active trusts include trusts which own the family home and derive minimal income (less than $200 annually ). Similarly, financial statements will not be required for bare trust arrangements.
The minimum standards for the financial statements would be similar to those currently required of companies. The statement of profit or loss and statement of financial position would be consistent with the IR10, but the financial statements would also need to meet the following minimum requirements:
There will be reduced reporting requirements if the trust is small, meaning it has not derived annual income or incurred expenses in excess of $30,000 during the income year, and the value of total trust assets did not exceed $2,000,000 within that income year. These de minimis amounts only provide partial relief from minimum financial reporting requirements (for example, cash accounting will be acceptable for small trusts).
In addition to the above minimum requirements, the statement of financial position will need to include the following specific items:
Acceptable valuation methodologies would be:
A reconciliation of beneficiary accounts would be required, specifically outlining:
The minimum standards also discuss what would be required to meet the other four broad items of information to be disclosed. Thankfully, Inland Revenue are taking a pragmatic approach with historic settlors where full information may no longer be available – Inland Revenue will only expect details known to the trustees to be disclosed; at a minimum this would be the name of the settlor but also includes other required information.
The information gathered under these rules could be used for investigation and audit activity.
These new requirements are going to add a considerable amount of work to the preparation of trust income tax returns, especially where financial statements are not already prepared for other reasons, such as meeting banking covenants. Ultimately the purpose of this information gathering exercise is to provide government with comfort that trusts are not being used in the way they were in the 2000s to shelter income which would otherwise be derived by an individual on the top personal tax rate.
Given the expanded requirements, we recommend contacting your Baker Tilly Staples Rodway advisor ahead of the end of this tax year to ensure you are best prepared to meet these new requirements.