Trust Residency Planning Undone by UK Effective Management, Says Court

The Court of Appeal has reaffirmed HMRC’s longstanding approach to the place of effective management (POEM) of trusts in the context of pre-2006 “round-the-world” tax avoidance schemes. In Haworth v HMRC [2025] EWCA Civ 845, the Court held that the POEM of a trust that had briefly appointed Mauritian trustees was, in substance, in the UK, where the individuals devising and orchestrating the scheme were resident.

The taxpayer had implemented a version of the “round-the-world” avoidance scheme under which Jersey trustees of a UK-resident trust resigned in favour of Mauritian trustees, who sold UK shares standing at a gain. Later in the same tax year, UK trustees were reappointed. Relying on Article 13(4) of the UK–Mauritius double tax treaty (DTT), the scheme aimed to ensure the gain was taxable only in Mauritius—where no capital gains tax was payable. The effectiveness of the scheme turned on the interpretation of the treaty tie-breaker in Article 4(3), which allocates residence by reference to the POEM.

Following its own precedent in Smallwood v HMRC [2010] EWCA Civ 778, the Court of Appeal confirmed that POEM involves more than a snapshot of formal decision-making at the time of a disposal. Instead, it encompasses the overarching strategic control and realistic management of the trust as a continuing body. In this case, the Mauritian trustees' actions were found to be pre-scripted and subordinate to the UK-based settlors and advisers who designed and directed the scheme.

The Court concluded that the real locus of effective management was in the UK. The judges rejected the narrow “day-of-disposal” approach and instead took a broader view, examining who was truly managing and directing the trust over the relevant period. As in Smallwood, the POEM was where the tax planning was initiated, overseen, and controlled—in this case, the UK.

This case confirms that a temporary shift in formal trustee residence is insufficient to change trust residence for treaty purposes if the overall control and purpose of the transaction remain with UK-resident individuals. The Court also highlighted the distinction between the POEM test under the OECD Model Convention (which must yield a single residence) and the common law central management and control (CMC) test (which may result in dual residence).

Implications
Although fact-specific and relevant mainly to legacy tax planning, this decision underlines the importance of substance over form in trust residence cases. It reinforces that UK tax exposure can arise even where foreign trustees are formally appointed, if their role is largely nominal and the true decision-making remains in the UK. The ruling is also likely to be persuasive in the context of corporate POEM determinations.