The new Government has indicated that it will proceed with the 39% trustee tax rate change. The draft legislation is contained in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Bill introduced in May last year by the previous Government. The Bill has this change applying from the start of the 2024/25 income year. 

In anticipation of this, Inland Revenue has released high-level guidance on how it may view certain transactions and restructures, which may be impacted by the new trustee tax rate. Specifically, whether these are likely to be of concern from a tax avoidance perspective.

The transactions considered in Inland Revenue’s guidance are summarised as follows:


Tax avoidance concern?

Features that may create such a concern

Changing dividend payment dates (trust owns a company)

No, in absence of other features (that suggest artificiality or contrivance)

Lack of financial capacity (e.g., insufficient reserves or assets on liquidation) to pay the dividend

Trust distributing income to lower rate beneficiaries

No, if made in accordance with trust deed and trust law

Beneficiary is not legally entitled to the distribution and/or cannot access the amount distributed/credited to them (e.g., if left as a loan owing to them)

Changing the investment structure from a trust to a company (and transferring the assets)

No, in absence of other features

Interposition of a holding company between an operating company and a trust, or diverting personal services income through a company  

Winding up an existing trust

No, in absence of other features


Investing in a PIE

No, in absence of other features


Allocating beneficiary income which is resettled back on the trust


Beneficiary is not in reality benefiting from the distribution

Crediting a beneficiary’s current account without their knowledge


Beneficiary has no expectation of receiving the income

Replacing dividend income with loans

Yes, if done in an artificial manner

Will depend on commercial reality, including term of the loan, interest and repayment terms, and ability for borrower to repay

Bringing forward income or deferring deductible expenses

Yes, if done in an artificial manner

If different to existing contractual terms or usual practice for payments or payment dates

Creating or increasing income and/or expenditure (e.g., interest, dividends or management fee expenses)

Yes, if it does not reflect the reality of the arrangement

If involving related party transactions

Our take

We welcome the release of Inland Revenue’s general guidance on the proposed 39% trustee tax rate. Inland Revenue’s view on what it considers to be within and outside the boundaries of tax avoidance is a helpful marker.


Necessarily, Inland Revenue’s guidance is based on the draft legislation as originally introduced into Parliament. That Bill is proceeding through a Select Committee process, where public submissions were sought. Those submissions, including by KPMG, raised various concerns, including the potential for over-taxation and the limitations of the limited carve-outs. In particular, it is worth noting that Inland Revenue’s guidance raises potential tax avoidance concerns with a key option that the original commentary accompanying the 39% trustee rate change suggested to mitigate over-taxation – resettling lower rate beneficiary distributions back on the trust. If there are changes to the draft legislation, in response to these concerns, then the guidance may need updating. However, this will not be known until March, when the Select Committee’s report back is due. Therefore, those looking to make decisions now around their trust arrangements, in anticipation of a 1 April start date, need to keep in mind that the final legislation could end up being different. This could also impact Inland Revenue's guidance.

Even if there are no substantive changes to the current draft legislation, as with any guidance, whether a transaction or restructure is likely to be acceptable, or not, will ultimately depend on the specific facts and circumstances. These are not questions with “black” and “white” answers. For example, while Inland Revenue’s view is that changing investment structures from a trust to a company, in and of itself, should not create tax avoidance concerns, how this is given effect may raise questions. If the transfer of assets is in consideration for a loan by the new company (compared to, say, the issue of equity) we can certainly see Inland Revenue asking some questions. The details (including the “how” and “why”) can matter and should not be overlooked.   

In summary, Inland Revenue’s high-level guidance is a useful addition, but needs to be viewed in the context of the above. If there is any doubt, we recommend talking to your tax advisors, including on options to get greater certainty.

Connect with us