Paul Davies
Paul Davies is a partner in the private client team of Clarke Willmott. He is a solicitor, a chartered tax advisor, and a member of the Society of Trust and Estate Practitioners, as well as being a chartered accountant (albeit no longer practising as such). He specialises in providing advice across the range of different tax and legal issues that face high net worth individuals, executors, and trustees.
Paul's work spans all areas of private client work, including wills, trusts of all kind, inheritance tax, succession planning, probate and estate administration, and lasting powers of attorney.
Paul acts as a professional trustee for a number of family trusts, and is also regularly called on to act as a professional executor.
Practice Area
Panel
- Contributing Author
Qualified Year
- 2003
Membership
- Chartered Institute of Taxation
- Law Society
- Society of Trust and Estate Practitioners
Education
- University of Nottingham 2(1) LLB
14 Contributions by Paul Davies
PRACTICE NOTES
Age 18–25 trusts under UK IHT: concessions, qualifying criteria and exit charge computation (including bereaved minors and former A&M trusts)
The distinct class of age 18–25 trusts was brought in by the Finance Act 2006 (FA 2006) to offset the withdrawal of traditional accumulation and maintenance (A&M) trusts. Under the A&M framework, trusts established for children and young people up to 25 benefited from exemption from inheritance tax (IHT) charges under those arrangements. Although the qualifying rules were quite tight and specific, they allowed any settlor, whether during life or on death, to provide for younger beneficiaries. See Practice Note: Accumulation and maintenance trusts—IHT [Archived].
After FA 2006:
existing A&M settlements kept their IHT advantages solely where the beneficiaries became outright entitled to trust property by the age of 18
new A&M type trusts could be set up for a child under 18 whose parent had died—see Practice Note: Taxation of trusts for bereaved minors—IHT
The age 18–25 rules broaden each of those groups to preserve limited concessions for beneficiaries until reaching the age of 25...
Private Client
PRACTICE NOTES
Bare trusts: inheritance tax treatment, common scenarios, exclusion from relevant property regime, PETs and estate inclusion, trustee duties and TRS
This Practice Note reviews what a ‘bare trust’ means and the inheritance tax (IHT) approach taken to these arrangements. For details on the income tax and capital gains tax (CGT) position of a bare trust, see Practice Note: Bare trusts—income tax and CGT.
What is a bare trust?
The label ‘bare trust’ refers to an arrangement where legal title to property sits with someone other than the beneficial owner of that same property for practical purposes. The beneficiary has unfettered rights to capital and income, while the legal holder undertakes the administration and day-to-day control of the assets concerned. Some examples of when a bare trust may exist are outlined below for guidance.
Assets held for minors (children)
Bare trusts gained in popularity following significant changes to the IHT treatment of settlements made by the Finance Act 2006 (see Practice Note: Finance Act 2006 changes to trust taxation [Archived]). Minors lack legal capacity to contract or to give a valid receipt for money or property. Property which, in equity, belongs to a child must therefore be held in a trustee’s name legally...
Private Client
PRACTICE NOTES
Discretionary and accumulating trusts: UK income tax treatment, rates, TMEs, small-income de minimis (from 2024–25) and tax pool rules
Practice Note
This Practice Note outlines the core income tax rules relevant to discretionary trusts and to any trusts that may retain income. Until the trustees choose to distribute funds to a beneficiary, that income is not the property of any individual. Accordingly, while the income is held by the trustees, it is charged at the special trust rates. If, and when, amounts are passed to beneficiaries, there are provisions that recalibrate the tax borne so it aligns with the beneficiary’s proper rate. See Practice Notes: Taxation of discretionary and accumulating trusts—the tax pool and Discretionary trust beneficiaries—income tax. For tax purposes, the trustees are collectively treated as a single person, separate from the natural persons who serve as trustees from time to time. Where more than one trustee is appointed, one—commonly called the ‘principal acting trustee’—typically corresponds with HMRC. Any step taken by the principal acting trustee is deemed to be taken by all the trustees. Every trustee of a trust bears joint responsibility for the total tax due, rather than merely a proportion of it...
Private Client
PRACTICE NOTES
Emigrating UK-resident trusts: legal mechanics, CGT exit charge (TCGA 1992 s 80), Panayi deferral, relief/HMRC recovery, and post-emigration UK CGT and income tax
This Practice Note examines the UK tax consequences of a UK-resident trust relocating out of the UK. Guidance on the continuing taxation of trusts that are not resident in the UK is also available in the Offshore trusts—taxation subtopic.
How does a trust migrate?
For a trust to move its residence from the UK, the UK trustees would usually resign formally from office and be replaced, in their stead, by newly appointed trustees who are not UK resident. For details on replacing trustees, see the Practice Notes: Trustees—appointment of trustees and Trustees—retirement of trustees. For additional guidance on trustee residence, see the relevant Practice Note: Tax position of non-resident trusts. A trust may emigrate where the trust deed grants the trustees (or another person, eg the protector or the settlor) an express authority to appoint non-UK resident trustees. Courts will ordinarily respect any such appointment provided it does not create detrimental outcomes for the beneficiaries. Where no express power exists in the trust deed to appoint new, non-UK resident trustees, whether the trust can emigrate is instead determined by case law...
Private Client
PRACTICE NOTES
Inheritance Tax treatment of trusts for bereaved minors: qualifying conditions, creation routes, concessions, multi‑beneficiary handling and flat‑rate charges on failure
What is a trust for a bereaved minor?
The Finance Act 2006 introduced a distinct, special category of trusts for bereaved minors (TBM), sometimes also called a bereaved minor’s trust (BMT), to provide IHT concessions for trusts set up in favour of children with a deceased parent. Before 22 March 2006, trusts of this kind would have fallen within the broader Accumulation and Maintenance (A&M) regime, but no new A&M trusts can be created after that date. See Practice Note: Accumulation and maintenance trusts—IHT [Archived]. TBMs have a more limited application than A&M arrangements. Except in rare circumstances explained below, they are brought into being on the death of a parent for the benefit of that parent’s minor children. A bare trust is not a TBM. Typically, a beneficiary’s entitlement under a TBM is contingent upon attaining 18 years of age. The trustees will usually have authority to accumulate income and to apply capital for the beneficiary’s benefit; however, it is also possible for TBM beneficiaries to have an interest in possession. A bereaved minor is a person who is under the age of 18 years and at least one of whose parents has died...
Private Client
PRACTICE NOTES
Interest in Possession Trusts: Qualifying Interests, Beneficial Entitlement versus Relevant Property, and IHT Treatment including IPDIs, DPIs, Pre-2006 IIPs and Transitional Serial Interests
What is a fixed interest trust/interest in possession for trust law purposes?
The entitlement a beneficiary holds in trust property can take the form of a fixed interest, conferring a right to income and/or capital, or it can hinge on the trustees’ exercise of a discretionary power (or that of another holder of a power) to confer benefits, after which the beneficiary acquires a fixed, limited or absolute, interest in the relevant property. It should be borne in mind that the concepts used in trust law and in tax law do not align; thus an interest in possession (IIP) for trust law purposes will not automatically amount to a qualifying IIP (QIIP) for inheritance tax (IHT) treatment. If the trust is governed by a system of law other than that of England & Wales, the construction of its terms falls to that governing law, and one should not assume that the expression carries the same meaning as under the law of England & Wales...
Private Client
PRACTICE NOTES
The relevant property regime for trusts under the Inheritance Tax Act 1984: recognition, exceptions, commencement, ten‑year charges, exits and related settlements
Relevant property
The phrase 'relevant property' identifies a class of trust assets that falls within a distinct inheritance tax (IHT) regime. As outlined in Practice Note: Introductory guide to the taxation of trusts, the IHT treatment of trust assets sits in two principal groupings:
beneficial entitlement
relevant property
Within the 'beneficial entitlement' grouping, trust assets are charged to IHT as though the beneficiary owned them outright. They are regarded as the beneficiary’s and are included within their estate. This generally applies where the beneficiary enjoys a qualifying interest in possession (QIIP), or holds an absolute entitlement to the trust assets. See Practice Notes: Qualifying interest in possession trusts—IHT treatment and Bare trusts—IHT.
In contrast, relevant property has a separate tax existence. Once it is effectively taken out of the settlor’s estate, it is not assessed as part of any other person’s estate. To balance this, a special regime applies. Relevant property can be subject to IHT at the following times:
when it becomes relevant property...
Private Client
PRACTICE NOTES
Trust capital losses: computation, claims, set-off and carry-forward; beneficiary transfers and absolute entitlement; connected persons ring-fencing; planning and anti-avoidance (purchased losses and GAAR)
Capital losses arising to trustees
For trustees, capital losses are computed on the same basis as for individuals (for more detail on individual losses, refer to Practice Note: CGT—utilising capital losses). Losses are offset against gains in the same year of assessment in the way that produces the most advantageous result; any amount not relieved can be carried forward and set against gains arising in later years. Carry-back to an earlier year is not permitted. Brought-forward losses need only be used against subsequent gains to the extent needed to reduce that year’s gains to the applicable annual exemption, ensuring the allowance is not wasted. A formal claim is required for losses to be allowable, usually on the Capital Gains supplementary pages of the Trust and Estate Tax Return. The general time limit for claims and reliefs is four years from the end of the relevant year of assessment. Although not mandatory, it is prudent to include details of capital losses on the annual tax return as a routine practice...
Private Client
PRACTICE NOTES
UK bare trusts: income tax and CGT treatment, beneficiary taxation, trustee compliance and TRS registration, with examples and common scenarios including minors, co-ownership, nominees, personal injury and vesting
This Practice Note outlines how trustees of bare trusts are treated for income tax and capital gains tax (CGT). Although, in equity, a bare trust is a form of trust, for both income tax and CGT its existence is disregarded. As a result, no liability to tax sits with the trustees for either income or chargeable gains. Instead, the two regimes look through to the beneficiary, who is assessed at their own rates of tax.
Income tax
The legislation in the Income Tax Act 2007 (ITA 2007), which sets out the settlements rules for income tax, excludes bare trusts from those provisions. Several provisions in ITA 2007 treat actions carried out by a bare trustee as though they were undertaken by the absolute beneficial owner...
Private Client
PRACTICE NOTES
UK Capital Gains Tax on Trusts: Principles, Actual and Deemed Disposals, Reliefs, Rates and Liabilities
General principles
For capital gains tax (CGT) purposes, trustees are regarded as a single chargeable person in their own right, distinct from the individual trustees. Although people often speak of trusts as if they, like a company, had their own separate legal personality, it is crucial to remember they do not. The process for working out a chargeable gain arising to trustees is largely the same as that used for an individual.
Trustees may choose to sell trust assets where, acting in line with their duties as trustees (see Practice Note: Trustees—duties), they believe this best serves the beneficiaries’ interests. Where trust property is in fact disposed of by an arm’s length sale to an unconnected third party, the computational rules use the consideration received for the disposal to calculate the chargeable gain. Besides actual disposals of trust property, trustees can be deemed to make a disposal for CGT purposes. For instance, a deemed disposal occurs when a beneficiary becomes absolutely entitled to the trust property...
Private Client
PRACTICE NOTES
UK CGT business asset disposal relief (formerly entrepreneurs’ relief) for trustees: qualifying beneficiary tests, conditions for shares and business assets, claims, planning, reorganisations and investors’ relief
Capital gains tax (CGT)
CGT provisions have long offered substantial relief to owners exiting their businesses. Up to 2008, assistance came through business asset taper relief and, earlier still, through retirement relief. When taper relief was scrapped in 2008, entrepreneurs’ relief was brought in to sustain the preferential effective CGT rate on business assets previously available under taper. From 6 April 2020, entrepreneurs’ relief took on a new name: business asset disposal relief (BADR). In essence, BADR lowers the CGT rate payable by business proprietors when they dispose of their business. Trustees may likewise claim BADR on the sale of business assets they hold, in the same way as individuals, provided the requisite conditions are met. For further detail on when individuals can obtain BADR and the qualifying conditions more generally (including the amendments introduced by Finance Act 2016 and Finance Act 2019 (FA 2019)), see Practice Note: CGT—business asset disposal relief (formerly entrepreneurs' relief)...
Private Client
PRACTICE NOTES
UK CGT reliefs for trustees—business asset roll-over, incorporation, EIS/SEIS deferral, company reorganisations, and losses on loans to traders
This Practice Note provides a concise overview of the principal capital gains tax (CGT) reliefs and exemptions relevant to business assets and available to trustees, as well as to individual business owners. It considers the following areas.
CGT reliefs for trustees carrying on a business, namely:
business asset roll-over relief
incorporation relief
CGT reliefs and incentives for trustees as investors, namely:
enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS)
relief on company reorganisations
relief for losses on loans to traders
EIS and SEIS play a significant role in drawing investment into a business. That said, this Practice Note concentrates on the tax treatment of both schemes for trustees in an investor capacity, ie the EIS income tax and CGT benefits available to an investor.
The reliefs excluded from this Practice Note, but covered in separate Practice Notes, are:
CGT business asset disposal relief (see Practice Notes: CGT—business asset disposal relief (formerly entrepreneurs' relief) and Taxation of trusts—CGT business asset disposal relief (formerly entrepreneurs' relief))
CGT investors' relief (see Practice Note: CGT—investors’ relief)
CGT hold-over relief (see Practice Notes: CGT—hold-over relief for...
Private Client
PRACTICE NOTES
UK taxation of trading by trustees and personal representatives: badges of trade, computation of profits, capital allowances, basis period reform, loss relief, and reporting
Trustees and personal representatives can, in fact, carry on a trade. For example, where a self-employed trader dies, the personal representative may keep the business running until it is wound down or sold. In the same way, trustees or interest in possession beneficiaries might be trading and could qualify for reliefs such as roll-over relief or business asset disposal relief. The broad tax rules governing trading apply to all traders alike, whether they are individuals, trustees, or personal representatives. This Practice Note sets out those principles below.
Is there a trade?
The key issue to examine is whether there is a trade. At times this will be clear, for instance when personal representatives step in to continue the deceased’s business; however, in other situations even a solitary transaction can amount to a trade. As an illustration, trustees who buy a property to renovate may, depending on the circumstances, be regarded as operating a property development business. If so, any gain on the later sale would fall within income tax rather than capital gains tax. It is not always about the taxation of profits...
Private Client
PRACTICE NOTES
UK trusts: SA900 income tax and CGT returns, TRS registration, and 30/60-day property disposal reporting
This Practice Note reviews the obligation on trustees to file a Trust and Estate Tax Return (form SA900) where a trust is chargeable to income tax and/or capital gains tax (CGT). For guidance on the rules governing trust income, expenses and capital gains, and the computation of tax liabilities, see the Trusts—income tax and capital gains tax subtopic. For commentary on completing the Trust and Estate Tax Return for estates by personal representatives, see Practice Note: Estate tax returns and informal procedures. All UK express trusts (not solely those with a UK tax liability in a given tax year) must be registered with the Trust Registration Service (TRS) unless an exemption applies. See Online registration and beneficial ownership information reporting requirements for trustees below for further guidance.
Requirement to submit a tax return
The income and gains of trusts fall within the Self Assessment regime. Where HMRC have issued a return, or served a notice to file, trustees are required to complete a Trust and Estate Tax Return (form SA900). Agents authorised to act for the trustees should be able to check online whether a return has been issued (and the date of issue, where relevant)...
Private Client
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