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Proposed Changes for Offshore Trusts: What You Need to Know

Non-resident trusts protections due to cease from April 2025

From 6 April 2025, the current income tax and capital gains tax (CGT) protections for non-resident trusts will end. This change impacts all settlors who are UK residents from the tax year 2025/26 onwards, excluding new arrivals.

The implications are significant, as settlors will face taxation similar to UK domiciled settlors – gains realised by the trust will be chargeable to the settlor unless the settlor, their children, grandchildren, and their respective spouses or civil partners are excluded from any benefit.

What it the political context?

With a general election in just a few days, the proposed changes could be subject to revision depending on the party in power. However, the Labour Party has indicated support for most aspects of the proposed rules under the current government. Until the incoming government produces legislation, caution should be taken before making irrevocable decisions.

What are the detailed changes proposed from April 2025?

Taxation on Gains: For existing and future non-resident trusts, income and capital gains tax protections will cease, meaning gains realised by non-resident trusts will be chargeable on the settlor unless all related parties are excluded from benefit. This is a rare practice and poses difficulties for settlors.

Trusts’ Tax Liability: Imposing primary or concurrent liability on the trust to pay CGT would be a beneficial legislative change, reducing the burden on settlors to pay CGT who have been excluded from benefitting. Alternatively, settlors could make the trust UK resident, shifting CGT liability to trustees. However, this comes with its complications, potential tax charges and potential exit charges if the trust is later moved back offshore.

Income Tax on Trusts: Settlors of non-resident trusts, resident in the UK for more than four years, will be subject to income tax on all trust and corporate income and offshore income gains if they or their spouse/civil partner can benefit. Excluding these parties may avoid the charge but presents challenges, especially if capital distributions have previously been received.

Impact on Beneficiaries: The loss of trust protections does not directly affect beneficiaries who are not settlors. Beneficiaries who have been in the UK for more than four years will be taxed on a worldwide basis on all trust benefits. However, unmatched capital payments or benefits received by beneficiaries on the remittance basis must be carefully reviewed before April 2025.

What can you do to mitigate the impact of the changes?

Don’t wait until the rules are in place to review your position.

Given the impending legislative changes, it is crucial for non-domiciled individuals and offshore trustees to review their positions now rather than when the rules are set in stone. Here are some things which could be considered:

If you are a non-dom individual you might want to consider the following:

  • Domicile Status Review: Ensure you have a strong argument for a non-domicile status.
  • Asset Restructuring: Evaluate assets for restructuring, such as realizing unrealized gains and converting income-generating assets to non-income generating assets like investment bonds.
  • Temporary Repatriation Facility: Consider using this facility for a 12% tax rate, which Labour may extend.
  • IHT Exposure: Review exposure to UK Inheritance Tax (IHT) and prepare for potential legislative changes in Autumn 2024.
  • Residence Position: Review the residence status of any settlor.

Offshore trustees could look at the following:

  • Domicile Position Clarity: Understand the settlor’s domicile status to assess the trust’s position accurately.
  • Trust Structure Review: Check if the trust has been tainted by additions from a deemed domiciled settlor or related beneficiaries.
  • Asset Rebasing: Consider triggering capital gains and bringing forward non-UK source income while protected settlements legislation is still applicable.
  • Investment Strategy: Explore alternative investment strategies that might offer favorable tax environments.
  • Onshore vs. Offshore Trusts: Evaluate whether keeping the trust offshore or moving it onshore is more beneficial.
  • Do Nothing Approach: In some cases, maintaining the trust as-is may be preferable for non-tax reasons.

If you are involved with a trust with both UK and non-UK connections we strongly recommend a review of your position well in advance of April 2025 to ensure optimal tax outcomes and compliance.

Contact Michelle Willson if you need our help.


The information was correct at time of publishing but may now be out of date.

Posted by Michelle Willson
1st July, 2024
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