Clause 33 - Trustees both resident and non-resident in a year of assessment
Finance Bill
11:30 am
Richard Spring (Shadow Minister, Treasury; West Suffolk, Conservative)
As we have heard, the clause prevents the UK from breaching any taxation treaties and ensures that in innocent cases, where there is a tax charge overseas, that can be credited against the UK tax bill arising on the same disposal. Hence the Bill seeks to prevent the rules from causing a tax penalty to arise when such a disposal is made in normal commercial circumstances.
The Government are right to highlight any possible abuse of so-called sunset schemes, but it has become general practice for anti-avoidance legislation to be introduced without prior notice. It is perhaps not surprising that the Bill contains clause 33 to counter a perceived mischief, whereby trustees change residence in order to obtain a tax advantage. It appears to be part of a general movement against what the Revenue considers to be a manipulation of residence. However, it is surprising that legislation has been introduced while the question of trust residence is still under debate. As is often the case, the measure appears to assume that all international movement takes place purely for tax reasons; it might therefore penalise trusts that make genuine disposals during a period of non-residence.
The prior notice point is still valid in that although we knew from the first Finance Bill of 2005 that the clause was likely to be included post-election, the effective date for the legislation remains at 16 March, so there was effectively no notice period for the change. The point about the outstanding issue of trust residence is also still valid, as draft legislation is not expected until spring 2006. We need clear reassurance that this anti-avoidance legislation, which we support in principle, will not catch innocent changes of residence. That point was made to us by outside, interested organisations and bodies. As a general point, we have been informed that the moving target of trust legislation under the modernisation review is making life extremely difficult for trustees, especially those who have primary interests in the interests of that trust.