Trusts (Capital and Income) Bill [HL]

The Trusts (Capital and Income) Bill [HL] deals with technical and complex matters relating to trust law where trustees have to distinguish between capital and income in their management of the trust property. The Government’s Explanatory Notes published with the Bill include a glossary of technical terms used, and it is not repeated here. The Bill is based substantially on recommendations made by the Law Commission in its 2009 report, Capital and Income in Trusts: Classification and Apportionment.

The Bill would make three changes to the current law:

• it would remove technical rules requiring apportionment between capital and income for new trusts, unless the trust instrument includes a contrary intention

• it would classify as capital for trust purposes any shares received by trustees on a tax exempt corporate demerger (whether direct or indirect); this reform would apply to both private and charitable trusts, whenever created, subject to a contrary intention being expressed; the trustees would have power to make a compensatory payment to an income beneficiary if they consider the circumstances justify this

• it would enable the Charity Commission to make regulations specifying the terms on which charity trustees can invest on a “total return” basis by passing a resolution, to replace the current system of specific applications to the Charity Commission; this would apply to all charities with a permanent endowment.

The purpose of the reforms is to:

• simplify and modernise trust law rules that create unnecessary expense, litigation and difficulty to trustees of both private and charitable trusts

• decrease the regulatory burden on the Charity Commission and

• facilitate total return investment by charities.

The reforms are intended to be tax-neutral.

The reforms have the support of the Opposition and of professional groups including the Law Society, the Trust Law Committee, the Society of Trusts and Estates Practitioners, and the Charity Law Association.

The Bill is following the special procedure which applies to Law Commission bills. It was not amended by the House of Lords. The Bill is due to have its second reading in the House of Commons on 5 November 2012.