What does it mean for you?
From 1 April 2024, the tax rate for trusts will increase from 33% to 39%. Draft legislation has been released and is expected to be law by end of March 2024.
The change aims to make the tax system fairer – since the top personal tax rate increased to 39% there has been a 50% increase in the amount of money going through trusts.
As it currently sits, the Bill would see the 33% trust tax rate retained for the following:
- Trusts with less than $10,000 of income (if over $10k, then 39% applies)
- Disabled beneficiary trusts
- Deceased estates in the year of death and the first three full income years following death
- Energy consumer trusts
Do you need to make changes?
We are actively looking at any clients with a trust, or a trust which owns shares in a trading company to review what should be the best way forward.
Going forward, there may be changes the trust can make to be more tax efficient but with certain caveats. For instance, if your trust’s beneficiaries pay tax at a lower rate, the trust could distribute its annual income to them. This allows the funds to be taxed at the beneficiary’s personal tax rate. If this isn’t possible, the trust may be able to credit income to a beneficiary’s current account, or for a sub-trust to be established for the beneficiary.
Trustees may also want to consider the administrative costs of a trust and whether it is still worthwhile under the new tax rate. The company tax rate remains at a flat 28%, which can provide other opportunities for asset ownership.
The government signalled during the election that this hike in the trust tax rate might only be temporary. They proposed that both the top personal income tax rate and trust tax rate might come back to 33% in a second term.
We can help you review and restructure your trust
Structuring your affairs in the most tax-friendly way can be tricky, but we’re here to help.
We can answer your questions about your trust, advise you on the implications of the new tax rate, and suggest ways to avoid paying unnecessary tax.
Drop us a note or give us a call, we’d love to hear from you.
