Offshore trusts—available relevant income (ARI)
Offshore trusts—available relevant income (ARI)

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

  • Offshore trusts—available relevant income (ARI)
  • Meaning of 'available relevant income'
  • Charge to tax
  • Dry trusts
  • Calculation mechanics and ARI

Capital payments made by an offshore trust to UK resident-domiciled beneficiaries are governed by a series of 'tax hierarchy' rules.

The order in which to consider how a benefit from an offshore trust is to be treated for tax purposes is as follows:

  1. is it a benefit which results in income being treated as arising to the beneficiary under the Transfer of Assets Abroad Code set out in sections 731–735 of the Income Tax Act 2007 (ITA 2007)?

  2. can it be matched with offshore income gains (OIGs) arising to the trustees in that or earlier years?

  3. can it be matched under the Taxation of Capital Gains Act 1992 (TCGA 1992) with any TCGA 1992, s 1(3) amounts (formerly s 2(2) amounts) comprised in a TCGA 1992, Sch 4C pool at the end of that year?

  4. can it be matched with any TCGA 1992, s 1(3) amounts not comprised in a TCGA 1992, Sch 4C pool at the end of that year?

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:

  1. used to pay trust expenses

  2. distributed as income, or

  3. allocated in prior distributions to UK

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