The taxation of trusts: a comparative study of South Africa and the United Kingdom

Abstract

Trusts are widely used both in South Africa and internationally for a variety of different purposes. In South Africa, trusts have come under fire from National Treasury as a result of what is perceived to be the use of trusts as a tax avoidance vehicle. Not only in South Africa, but also globally, the trust has become somewhat notorious for its use as an instrument for tax avoidance and the concealment of wealth. In South Africa, National Treasury has responded to these concerns by proposing a number of amendments to the existing tax legislation aimed at curbing the use of trusts for tax avoidance purposes, some of which have been severely criticised by the public. The fact that the use of trusts to avoid tax is an international phenomenon raises the question on how jurisdictions other than South Africa are taxing trusts and whether the South African legislature can apply the principles used in other jurisdictions in determining the direction that our own legislation should take. In this report, this is assessed through a comparative analysis of the rules relating to the taxation of trusts in South Africa with those of another jurisdiction, namely the United Kingdom. At its outset, this report provides an overview of the history of the modern trust of South Africa and the United Kingdom, both of which have their roots in the English common law trust. This is followed by an analysis of the taxation regime relating to trusts in each state. Finally, a comparative analysis is done of the taxation of trusts in each state, with the aim of determining the main differences between the taxation regimes applied in each state.