UK tax position of non-resident trusts

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

  • UK tax position of non-resident trusts
  • Trust residence
  • Income tax
  • Capital gains tax
  • The exit charge
  • Compliance
  • Inheritance tax

This guidance note outlines the incidence of UK taxation on the non-resident trust entity.

 

As with individuals and companies, the extent of a trust’s liabilityto UK taxation is dependent upon its residence status. A trust which is UK resident is liable to UK income tax and capital gains tax on its worldwide income and gains (subject to double tax relief where applicable).

If it is not UK resident, its liabilityto income tax is restricted to UK source income. Its liabilityto capital gains tax is restricted to interests in UK land and the assets of a UK branch or agency. See below.

A trust’s liabilityto inheritance tax is not determined by residence but by domicile of the settlor and where the trust property is situated.

Since non-resident trusts may escape liabilityto UK taxation, there are extensive anti-avoidance rules which charge UK residents who have created or benefited from them.

This guidance note outlines the incidence of UK taxation on the non-resident trust entity. Other notes in this sub-topic summarise the tax consequences for settlors and beneficiaries:

  • Tax on UK settlors of non-resident trusts
  • Tax on UK resident beneficiaries of non-resident trusts (overview)
  • Non-domiciled and deemed domiciled settlors
Trust residence

The residence status of a trust is determined by the physical residence of its trustees. For both income tax and capital gains tax purposes, the trustees are effectively a single person irrespective of who may from time to time be the actual trustees.

ITA 2007, s 474; TCGA 1992, s 69(1)

If all the trustees are UK resident, the trust will be UK resident.

ITA 2007, s 475(2); TCGA 1992, s 69(2A)

If all the trustees are non-UK resident the trust will also be non-resident.

ITA 2007, s 475(3); TCGA 1992, s 69(2E)

More on Non UK resident trusts: