Tax regimes relevant to UK resident settlors of offshore trusts This Practice Note gives an overview of the main legislative regimes which determine the extent to which a UK-resident settlor is subject to UK tax on the income and capital gains of an offshore trust from 6 April. For information on the position before that date, see Practice Note: UK taxation of offshore trusts—income tax and capital gains tax. For information on how inheritance tax (IHT) may apply to the settlor of an offshore trust, see Practice Notes: A new residence-based regime for IHT from 2025–26 and New IHT regime from 6 April 2025—FAQs. The regimes addressed in this Practice Note are: • the settlements code set out in Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005), ss 619–648 • the transfer of assets abroad code set out in Income Tax Act 2007 (ITA 2007), ss 714–747 • Taxation of Chargeable Gains Act 1992 (TCGA 1992), s 86 which attributes capital gains arising within a non-UK resident

The special category of age 18–25 trusts was introduced by Finance Act 2006 (FA 2006) to compensate for the loss of old style accumulation and maintenance (A&M) trusts. The A&M regime offered exemption from inheritance tax (IHT) charges on trusts in favour of children and young adults up to the age of 25. The conditions were fairly narrow and precise but nevertheless enabled any settlor, both in lifetime and on death, to make provision for young people. See Practice Note: Accumulation and maintenance trusts—IHT [Archived]. After FA 2006: • existing A&M trusts could retain their IHT privileges only if beneficiaries became absolutely entitled to trust assets by the age of 18 • new A&M style trusts could only be created for a child under 18 whose parent had died—see Practice Note: Taxation of trusts for bereaved minors—IHT The age 18–25 provisions extend both of these categories to retain some concessions for beneficiaries up to the age of 25. Inheritance tax concession Where property is held in a trust which qualifies as an age

STOP PRESS relating to Reserved Investor Funds: Legislation setting out the tax rules for a new type of unauthorised contractual fund, the Reserved Investor Fund (Contractual Scheme), known as the RIF, came into force in March 2025. For more on RIFs and their tax treatment, see News Analysis: The new reserved investor fund—a brief guide. FORTHCOMING CHANGE relating to the modernisation of stamp taxes on securities framework: Stamp duty and SDRT will, in 2027, be replaced with a single, self-assessed tax on transfers of securities, the securities transfer tax (STT) (formerly referred to as the securities transfer charge or STC), that will be paid (and reported) through electronic transfer systems such as CREST or, where appropriate, a new online portal. Draft legislation for the STT was published on 13 July 2026, along with explanatory notes, a policy paper and the outcome of the higher rate 1.5% stamp tax consultation. For more information on the STT and the modernisation of stamp taxes on securities, see News Analyses: Legislation Day: Draft Finance Bill 2027—Tax analysis—Stamp and transfer taxes, Budget 2025—Tax analysis—Stamp and transfer taxes, Tax update spring 2025—Stamp

A ‘tax elected fund’ (TEF) is an authorised investment fund (AIF) that has successfully applied to HMRC for TEF status. Similar to the PAIF regime (which is available to certain AIFs that invest in property), a specific tax regime applicable to TEFs is designed to move the point of taxation away from the fund vehicle, to the investor. The result is that investors in a TEF are taxed as though they had invested in the underlying assets directly. Subject to certain special rules contained in the TEF regime, TEFs otherwise remain within the tax rules generally applicable to AIFs. The TEF regime was introduced in 2009 with the aim of improving the tax efficiency of funds that invest in a mixed portfolio of assets—this is because the TEF regime enables the streaming of different types of income to investors. The TEF regime is not suitable for funds that receive income directly from a (UK or overseas) property business (for which the PAIF regime may be used instead). It was acknowledged in the

ARCHIVED: This Practice Note has been archived and is not maintained. During the coronavirus (COVID-19) pandemic, the UK government implemented a series of measures to support individuals and businesses adversely affected by the pandemic. Several of these measures involved the receipt of funds directly from government or local government that were not expected to be paid back, ie grants rather than loans. For more detail on these schemes, see Practice Note: Coronavirus (COVID-19)—tax implications [Archived]. Guidance relating to these schemes indicated that the recipients should treat these grants as taxable income because the grant was, in effect, replacing business income that would otherwise have arisen. On 29 May 2020, the government published draft legislation, tax information and impact note and explanatory notes for consultation. The legislation was ultimately enacted as section 106 of and Schedule 16 to Finance Act 2020 (FA 2020). The purposes of the legislation were: • to treat COVID-19 support payments as income where the business was within the scope of income tax or corporation tax • to enable

STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime Finance Act 2025 (FA 2025) which received Royal Assent on 20 March 2025, implements legislation to abolish the remittance basis of taxation and replace it with a residence-based regime, commencing on 6 April 2025. FA 2025 also replaces domicile as the key factor in establishing liability to inheritance tax. Other changes include amendment of the rules determining excluded property status, the abolition of protected settlements status of offshore trusts, and changes to overseas workday relief. For information on these changes, see: Practice Notes: The abolition of the remittance basis of taxation from 2025–26 and A new residence-based regime for IHT from 2025–26. FORTHCOMING CHANGE: On 27 April 2023, the previous Conservative government issued a consultation (with a closing date of 22 June 2023) on modifying the tax treatment of decentralised finance (DeFi) cryptoasset lending and staking transactions. The consultation sought views on the implementation of a proposal that would disregard

STOP PRESS: The Property (Digital Assets etc) Act 2025 received Royal Assent on 2 December 2025 and came into force on that day. Section 1 states that a thing (including a thing that is digital or electronic in nature) is not prevented from being the object of personal property rights merely because it is neither a thing in possession, nor a thing in action. This means that digital holdings including cryptocurrency, non-fungible tokens and carbon credits can now be considered as personal property. See LNB: 04/12/2025 2. STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime Finance Act 2025 (FA 2025) which received Royal Assent on 20 March 2025, implements legislation to abolish the remittance basis of taxation and replace it with a residence-based regime, commencing on 6 April 2025. FA 2025 also replaces domicile as the key factor in establishing liability to inheritance tax. Other changes include amendment of the rules determining excluded property status, the abolition of protected

The general rule is that profits and losses arising to a company from its derivative contracts are brought into account for corporation tax purposes on the basis of the company’s accounting measure of profit and loss in respect of those derivatives, as disclosed in the company's relevant accounts prepared in accordance with generally accepted accounting practice (GAAP). In other words, a company’s accounts prepared in compliance with GAAP provide the means by which the existence, measure and the timing of taxable amounts in relation to its derivative contracts are identified for corporation tax purposes. This is often described as ‘tax following the accounts’. The rules for the taxation of derivative contracts are contained in Part 7 of the Corporation Tax Act 2009 (CTA 2009) (CTA 2009, ss 570–710) and are discussed further in Practice Note: Taxation of derivatives—the main rules. There are, however, a number of specific circumstances where the rules for the taxation of derivatives depart from their reliance on a company's accounts. One area where this is the case is where anti-avoidance provisions within Part

The general rule (as explained in Practice Note: Taxation of derivatives—the main rules) is that the profits and losses arising to a company from its derivative contracts are (like the profits and losses from its loan relationships) brought into account for corporation tax purposes as income. The derivative contracts rules are found in Part 7 of the Corporation Tax Act 2009 (CTA 2009), referred to in this Practice Note as Part 7. This Practice Note discusses the specific circumstances where this general rule is disapplied, and profits and losses on a company’s derivative contracts are instead brought into account for corporation tax purposes on a chargeable gains basis. Where profits and losses on a company’s derivative contracts are taxed on the chargeable gains basis, this does not necessarily mean that: • the normal principles for calculating corporation tax on chargeable gains apply, or • there is an actual or deemed disposal in relation to the relevant derivative contract Rather, the derivative contracts regime contains its own specialist chargeable gains provisions within Part 7.

This Practice Note explains what embedded derivatives are, and their relevance and treatment within the derivative contracts taxing regime. As with many things derivatives-related, it is difficult to understand the tax rules concerning embedded derivatives without having at least a basic understanding of relevant accounting rules and principles. For that reason, this Practice Note deals with how certain instruments are accounted for before looking at the relevant tax rules. For a more general background to the accounting framework and key accounting principles relevant to the taxation of financial instruments, including derivative contracts, see Practice Note: Loan relationships—accounting framework and principles. This Practice Note does not constitute accounting advice and is not intended to be exhaustive in relation to relevant accounting principles. It seeks only to provide a broad and basic overview of relevant accounting principles in order to assist an understanding of the derivative contracts corporation tax rules and to enable further investigation where necessary. In no circumstances should it be used as a substitute for obtaining accounting advice. This Practice Note does not discuss the recognition

This Practice Note explains the basis on which profits and losses are recognised for corporation tax purposes where a derivative contract is used as a hedge. As with many things derivatives-related, it is difficult to understand the tax rules concerning derivatives involved in hedging without having at least a basic understanding of relevant accounting rules and principles. For that reason, this Practice Note deals with how hedging arrangements are accounted for before looking at the relevant tax rules. For much more general background on the accounting framework and key accounting principles relevant to the taxation of financial instruments, see Practice Note: Loan relationships—accounting framework and principles. A full and complete description of relevant accounting concepts and principles is beyond the scope of this Practice Note. Any explanations of accounting rules are not intended to be exhaustive and do not constitute accounting advice. Their purpose is solely to assist an understanding of the derivative contracts taxing regime and to enable further investigation where necessary. Nothing in this Practice Note should be used as a substitute for obtaining accounting

The derivative contracts regime provides the rules for the taxation and relief of a company’s profits and losses arising from its ‘derivative contracts’. The rules are found primarily in Part 7 of the Corporation Tax Act 2009 (CTA 2009), referred to in this Practice Note as Part 7. Some secondary legislation is also relevant, particularly the regulations commonly known as the ‘Disregard Regs’ (the Loan Relationships and Derivative Contracts (Disregard and Bringing into Account of Profits and Losses) Regulations 2004, SI 2004/3256, as amended). This Practice Note looks at the rules determining how profits and losses arising from a company’s derivative contracts are computed and brought into account for corporation tax purposes. For the definition of a ‘derivative contract’ for corporation tax purposes and the types of instruments and transactions falling within the scope of the derivative contracts rules, see Practice Note: Taxation of derivatives—what are derivative contracts? For more detailed coverage of specific aspects of the derivative contracts rules, see Practice Notes: • Taxation of derivatives—chargeable gains basis rules • Taxation of derivatives—anti-avoidance • Taxation of