Tax on UK resident settlors of non-resident trusts

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Tax on UK resident settlors of non-resident trusts
  • Income tax charges on settlor-interested trusts
  • Transfer of assets abroad code
  • Attribution of capital gains to settlors (section 86)
  • Capital gains charge on settlor under section 87

Where a UK resident settlor has created a non-UK resident trust, he may become personally liable to income tax or capital gains tax in relation to the trust’s income or gains, even if he does not receive a payment from the trust. The following legislative provisions levy a potential charge on UK settlors of non-resident trusts:

  • the settlements code set out in ITTOIA 2005, ss 619–648 imposes an income tax charge on settlors with respect to income arising within a ‘settlor-interested’ trust. The provisions apply equally to UK resident and non-resident trusts
  • the transfer of assets abroad code (TAAC) set out in ITA 2007, ss 714–747 imposes an income tax charge on settlors who may benefit from a non-resident trust as a result of a ‘relevant transfer’
  • TCGA 1992, s 86 attributes capital gains arising within a non-UK resident trust to settlors who have an interest in the settlement
  • TCGA 1992, s 87 imposes a capital gains tax charge on the settlor in relation to certain benefits received by himself or others. This applies principally (but not exclusively) to non-domiciled settlors

There is a degree of overlap between the different provisions and the order in which they are listed above represents the order of priority to be applied. This guidance note outlines the application of each type of charge and provides links to more detailed material as appropriate.

Income tax charges on settlor-interested trusts

In general terms, the settlements code is a set of anti-avoidance measures which attribute income arising under a settlement to the settlor if he (or his spouse or minor children) is able to benefit from it. With a UK resident trust and settlor, the code has the effect of taxing the trust income at the settlor’s

More on Non UK resident trusts: