Offshore trusts—attribution of gains to settlors
Offshore trusts—attribution of gains to settlors

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Offshore trusts—attribution of gains to settlors
  • Settlor
  • Settlor’s interest in the settlement
  • 'Qualifying' settlement
  • Charge to tax
  • Disposals of UK property by trustees
  • Gains of trust-owned companies
  • Disposals of carried interest by trustees
  • Double Tax Treaties
  • Recovery of tax by settlor from trustees
  • more

Part III, Chapter 2 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and Part 5, Chapter 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) form part of the 'Settlements Code'. This Practice Note considers the effects of TCGA 1992, s 86 and Sch 5.

Prior to 1991, there was no attribution of either income or gains of any settlement to the settlor unless he or his spouse were actual or potential beneficiaries or enjoyed a benefit. The Finance Act 1991 attributed the gains of certain offshore settlements to the settlor.

In 1998, the categories of settlement caught by the 1991 legislation was enlarged by further legislation. Now TCGA 1992, s 86 applies to all settlements except 'protected TCGA 1992, settlements' and 'grandchildren settlements'. The tainting rules now only apply to determine whether 'protected settlements' and 'grandchildren settlements' are caught by TCGA 1992, s 86. See Practice Note: Offshore trusts—attribution of gains to settlors—tainting of protected settlements and grandchildren settlements.

TCGA 1992, s 86 is more severe than the Transfer of Assets Abroad Code contained in Chapter 2, Part 13 of the Income Tax Act 2007 (ITA 2007) (see Practice Note: Transfer of assets abroad—introduction) because it is possible for gains of an offshore trust to be attributed to the settlor, even if the settlor and his/her spouse