Parliamentary.ai

Overview

The Trusts (Capital and Income) Bill aims to modernize trust law in England and Wales, primarily by simplifying rules governing the distribution of income and capital within trusts, and by allowing charities greater flexibility in managing their endowments.

Description

This bill makes several key changes to trust law:

• Disapplication of outdated rules: It abolishes several complex and often-conflicting historical rules on how income and capital are split in trusts, including rules from the Apportionment Act 1870 and various precedents. These rules will only apply if specified in the trust's documentation. This simplification aims to make trust administration clearer and more efficient for new trusts created after the bill's enactment.
• Tax-exempt corporate distributions: Tax-exempt corporate distributions will be classified as capital receipts for trust purposes, rather than income, unless the trust document specifies otherwise.
• Compensation for income beneficiaries: The bill allows trustees to compensate income beneficiaries if a tax-exempt corporate distribution (treated as capital) would have otherwise generated income for them. This ensures fair treatment of beneficiaries in such situations.
• Total return investment for charities: The bill allows charities greater flexibility in managing their endowment funds. Charities can now invest their endowment funds on a "total return" basis—seeking a balance between capital growth and income generation—rather than being restricted to maintaining a strict balance between capital and income, subject to regulations to be made by the Charity Commission.

Government Spending

The bill is not expected to have a significant direct impact on government spending. The changes primarily affect the administration of trusts and charities, not government budgets.

Groups Affected

• Trusts: New trusts will benefit from simplified rules, while existing trusts will be unaffected unless their trust deeds specify otherwise.
• Trustees: Trustees will have a simplified framework for managing income and capital distributions, potentially reducing administrative burdens. They will also have increased responsibilities to ensure equitable distribution in certain scenarios.
• Beneficiaries: Beneficiaries might experience changes in income distribution depending on the nature of the trust and the application of the new rules. Some may see increased clarity on distribution, while others may need to adjust to new frameworks.
• Charities: Charities will gain greater flexibility in managing endowment investments, potentially leading to improved long-term returns and better alignment with charitable goals. They will also be subject to increased reporting requirements in relation to the new system.