2023 Budget: Trust tax rate will increase to 39%

In May, the government released their budget which announced a tax change to the trust tax rate. From 1 April 2024, the trust tax rate will increase from 33% to 39%. It is possible that the increase in the trust tax rate may not go through considering the election later this year (and the limited time to pass legislation beforehand) - watch this space.

When the government increased the top individual marginal tax rate to 39% for income above $180k in 2021, the government was advised by Inland Revenue to increase the trust tax rate at the same time. However, it did not; hence we are seeing this change now.

Recently we have had several legislative changes to trusts such as the Trustees Act 2019, increased disclosure to Inland Revenue required in trust income tax returns and deemed settlor issues regarding beneficiary loans on non-commercial terms to name a few. Trusts still have benefits (such as asset protection and succession planning) but are coming with increasing compliance costs. If you’d like to discuss your trust with us please contact us to arrange a trust review.

With the election just four months away, we are likely to see substantial tax announcements on the campaign trail from all parties.

If the trust tax rate does increase, we will be reviewing company balance sheets and dividend policies to ensure any dividends are paid to trusts before any increase (therefore being taxed at 33% not 39%). For more information about dividends please see here.