Four key steps to start planning for the potential change to the Trust tax rate

In Covisory’s latest Deskside Chat, Nigel Smith discusses the potential change in the trust tax rate to 39% from April 1, 2024, based on a bill introduced by the previous Labour government. The National government and its coalition partners have reintroduced the bill, including the 39% trust tax rate. It is uncertain whether this change will be implemented, but it is noteworthy that the National government might bring in the 39% tax rate instead of the previous Labour government.

The trust tax rate increase comes with anti-avoidance measures, particularly targeting trusts distributing income to companies. If implemented, companies receiving such distributions will be taxed at 39%. Nigel advises viewers to plan for the potential change by identifying clients requiring the clearance of imputation credit accounts (ICAs) before March 31, 2024, due to the current 33% trust tax rate.

He emphasises the importance of planning selectively, considering clients with large credit current accounts and evaluating whether to pay dividends based on their financial positions. Additionally, Nigel suggests paying the 2024 third provisional tax instalment and any 2023 terminal tax before March 31 to maximise ICAs at the old rate. For those using tax pooling intermediaries, ensuring tax credits before the deadline is crucial.

In summary, Nigel provides four key steps:
1. Identify clients for ICA clearance.
2. Complete dividend documents.
3. Pay P324 and terminal tax for 2023 early.
4. For tax pooling clients, coordinate with intermediaries to ensure tax payments are credited back before March 31, 2024.