Offshore trusts—taxation of capital payments to UK resident and domiciled beneficiaries
Offshore trusts—taxation of capital payments to UK resident and domiciled beneficiaries

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

  • Offshore trusts—taxation of capital payments to UK resident and domiciled beneficiaries
  • Interaction with other anti-avoidance regimes
  • What is a capital payment?
  • When does a beneficiary 'receive' a payment?
  • Form of capital payments
  • Transfers between trusts
  • Case Study

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.

Income, capital gains and offshore income gains (OIGs) of an offshore trust are deemed to accrue to a UK resident beneficiary if he receives a capital payment from the trust.

The following is an overview of the taxation of capital payments to UK resident and domiciled beneficiaries of offshore trusts. Practice Notes which deal with the tax issues arising on payments from an offshore trust to non-domiciled persons are: Offshore trusts—matching capital payments—section 87 TCGA 1992 and Offshore trusts—rebasing elections.

Interaction with other anti-avoidance regimes

When trustees of offshore trusts make a payment to a UK resident beneficiary, certain other anti-avoidance regimes need to be considered in order to determine whether the payment will be characterised as income or capital, or offshore income gains. 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 regime set out in sections