Overview

The Trusts (Capital and Income) Bill aims to modernize trust law in England and Wales, clarifying how income and capital are distributed within trusts and simplifying the rules surrounding investments for charities.

Description

This bill makes several key changes to trust law:

Disapplication of Apportionment Rules:

For new trusts established after the bill's enactment, it abolishes several complex historical rules (Howe v. Earl of Dartmouth, Re Earl of Chesterfield's Trusts, Allhusen v. Whittell) concerning the division of income and capital. It also clarifies that income from a trust accrues daily, rather than annually.

Classification of Corporate Distributions:

Tax-exempt corporate distributions are now considered capital for trust purposes, regardless of their previous income classification. This applies to both new and existing trusts, unless the trust document specifies otherwise. The Secretary of State can extend this to other tax-exempt distributions.

Compensation for Income Beneficiaries:

Trustees can compensate income beneficiaries if a tax-exempt distribution (treated as capital) would have otherwise been received as income, aiming to maintain equitable distribution.

Total Return Investment for Charities:

The bill allows charities to invest their endowment funds on a total return basis, without the need to maintain a balance between capital and income. This requires charity trustees to meet certain conditions and abide by regulations set by the Charity Commission.

Government Spending

The bill is not expected to have a significant direct impact on government spending. Any cost would likely be indirect, related to potential changes in administration or compliance within government agencies.

Groups Affected

• Trust beneficiaries: May experience changes in the way they receive income or capital from trusts, particularly beneficiaries of newly established trusts.
• Trustees: Will need to adapt their management of trusts to comply with the new rules, particularly concerning investments.
• Charities: Will have greater flexibility in managing their endowment funds, potentially allowing for better long-term investment strategies.
• Solicitors and lawyers: Will need to be familiar with and advise clients on the updated legal framework.

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