Overseas entity classification—trusts, usufructs and foundations
Produced in partnership with Katharina A. Byrne
Overseas entity classification—trusts, usufructs and foundations

The following Private Client guidance note Produced in partnership with Katharina A. Byrne provides comprehensive and up to date legal information covering:

  • Overseas entity classification—trusts, usufructs and foundations
  • Classification of foreign entities: transparent or opaque
  • Bare trusts or nomineeships
  • Sham trusts
  • Substantive trusts
  • Meaning of ‘settled property’ for income tax and capital gains tax
  • Meaning of ‘settlement’ for inheritance tax
  • Usufructs
  • Foundations
  • Trust enterprise
  • more

There is a wide range of structures that can be used to hold wealth; many use vehicles established outside the UK. This Practice Note discusses how the UK tax system treats foreign entities.

Each tax must be considered separately. An entity may be considered a settlement for inheritance tax (IHT) purposes, but may not be settled property for capital gains tax (CGT) purposes. UK tax law categorises foreign entities as companies, trusts or partnerships. Companies are opaque, while partnerships are transparent. Trusts are subject to a separate regime.

Classification of foreign entities: transparent or opaque

In relation to a transparent entity, a member is regarded as being entitled to a share of the underlying profits and gains of the entity as they arise. A member of an opaque entity, however, is broadly only taxed on distributions made by the entity to the member: there is no ‘look through’ from the source of the underlying profits and gains to the member. UK legislation provides little guidance on whether a foreign entity is to be treated as transparent or opaque for UK tax purposes. Instead, it is necessary to look to decisions of the UK courts and HMRC guidance. See Practice Notes: UK tax implications of overseas entity classification and distributions from overseas entities and Entity classification case law and HMRC's interpretation for