The following Private Client guidance note provides comprehensive and up to date legal information covering:
STOP PRESS: This Practice Note is being reviewed in light of the changes introduced by section 35 and Schedule 10 to the Finance Act 2018. For further guidance, see Practice Notes: Finance Act 2018—progress through Parliament and Changes to the taxation of offshore trusts from 6 April 2017.
Capital payments made by an offshore trust to UK resident-domiciled beneficiaries are governed by a series of 'tax hierarchy' rules, see the Offshore trusts—taxation of capital payments to UK resident and domiciled beneficiaries Practice Note for more information. These rules govern the tax treatment of the amounts received by the beneficiary. The first step in determining the beneficiary's tax liability is to consider available relevant income (ARI).
ARI is comprised of any income that has been accumulated in the trust in the years since its creation that has not been:
used to pay trust expenses
distributed as income, or
allocated in prior distributions to UK residents and charged to tax under sections 731-735 of the Income Tax Act 2007 (ITA 2007)
It is the trustee's responsibility to calculate the cumulative ARI going back to the trust's creation. Note that any income that arose to the trust prior to 10 March 1981 is excluded from the ARI calculation.
ARI is calculated under ITA 2007, ss 731–735 and allocated to beneficiaries
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