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Amending legislation for trust modernisation

As announced in October, legislation will be introduced in the Finance Bill to correct two omissions in the Finance Act 2006.

The first provides that where a company buys back its own shares trustees are only taxed on the excess over their original subscription price. This applies from 6 April 2006 and puts the legislation back into line with the treatment of trustees before 6 April 2006 and the treatment of other shareholders.

The second applies where trustees make chargeable event gains on life assurance policies, capital redemption policies or life annuity contracts. An omission in Finance Act 2006 allowed the notional tax credit on such gains to be added to the trustees’ tax pool. (The tax pool is a statutory mechanism which ensures that the tax credit given to beneficiaries of discretionary trusts is matched with actual tax paid by the trustees). From 6 April 2007 the notional tax credit on these gains will no longer be added to the trustees’ tax pool.