Offshore trusts attacked by government tax plans

THE GOVERNMENT plans to crack down on offshore trusts used to avoid tax on bonuses, it revealed yesterday, as part of its plan to shake up tax rules.

Money kept in trusts for employees will be treated as payments to workers and taxed at a higher rate under the government’s 2011 budget plans published yesterday.

HMRC hopes the measures, due to come into force in 2011, ensure “investors continue to make investment choices for commercial rather than tax reasons”. It predicts the changes will generate £2bn over the life of the Parliament, or £500m a year. It will affect around 50,000 employees in 5,000 companies, the department added.

Financial services firm KPMG said the measures could have far-reaching effects. “[T]he breadth of the new rules may well inadvertently impact on straightforward share scheme arrangements, the required deferral of cash bonuses for regulatory reasons and on overseas pension plans in ways that are not intended,” said tax partner Colin Ben-Nathan.