General principles relating to foreign trust income
This guidance note deals with foreign income received by a UK resident trust. For the position relating to non-UK resident trusts, see the UK tax position of non-resident trusts guidance note.
Foreign income is income arising from a source outside the UK. Foreign investment income includes interest payable by an overseas bank or dividends paid by a non-UK company.
As a general rule, all categories of foreign income are taxed under the same provisions as apply to UK equivalents. However, there are some provisions relating specifically to foreign income which are discussed in this guidance note.
Note that rental income from foreign land constitutes an ‘overseas property business’ which is taxed separately from a UK property business. See the Property income guidance note
A UK resident trust pays tax on all its foreign income on an arising basis, except where the beneficiary is absolutely entitled to the income and is either:
non-domiciled and a remittance basis user for the year in question
A non-resident beneficiary is not liable for UK tax arising on foreign income. Consequently, where a non-resident beneficiary is absolutely entitled to trust income, trustees are not liable for tax on that income and they should not declare it on the Trust and Estate Tax Return (see page TFN2 of the SA904 notes).
Where the beneficiary is a remittance basis user, the trust is taxed only on the income which is remitted. The amount remitted should be included on the Trust and Estate Foreign pages (SA904) on page TF2.
If income is ‘unremittable’ because, for example, exchange controls prevent it being withdrawn form the country of origin, it is excluded from the income tax charge. The unremittable amount is declared on the SA904, but it is not carried forward into the totals of amounts chargeable. Instructions are given in the SA904 notes.
Conversion into sterling
It is a basic rule that, in order to calculate the UK tax, all income and gains