Trusts and Inheritance Tax

Tax on UK resident beneficiaries of non-resident trusts (overview)

Produced by Tolley
  • 22 Apr 2022 11:31

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

  • Tax on UK resident beneficiaries of non-resident trusts (overview)
  • Introduction
  • Income or capital
  • Income distributions ― fixed interest trusts
  • Income distributions ― discretionary trusts
  • Capital payments
  • Transfer of assets abroad code
  • Attribution of capital gains
  • Non-UK domiciled beneficiaries

Tax on UK resident beneficiaries of non-resident trusts (overview)

Introduction

UK resident beneficiaries of non-resident trusts are subject to UK tax on payments or benefits received from the trust. They are liable for income tax on income distributions from the trust and they may also be liable to income tax or capital gains tax on payments of capital from the trust.

In contrast to UK settlors of non-resident trusts, the liability of beneficiaries is determined by the extent of their entitlement or the amounts actually paid to them. They have no UK tax liability in a year in which they have not benefited from the trust. See the Tax on UK resident settlors of non-resident trusts guidance note.

This guidance note provides an overview of the tax treatment of both income distributions and capital payments, and provides links to more detailed material.

Income or capital

In order to establish which tax provision applies, one must first determine whether the payment or entitlement is of income or capital. With a non-resident trust, an income distribution is always subject to income tax in the UK resident beneficiary’s hands. A capital distribution may be subject to income tax or capital gains tax, or not subject to tax at all.

The general rules, which apply equally to both UK resident and non-resident trusts, are that:

  1. a payment out of available trust income is income of the beneficiary

  2. a payment from capital, or from income which has been formally accumulated, is a payment of capital

  3. exceptionally, a payment from trust capital

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.

TAKE A FREE TRIAL

Popular Articles

Exemption ― supplies of stamps and philatelic items

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s

25 Feb 2022 15:54 | Produced by Tolley Read more Read more

Chargeable lifetime transfers

This guidance note explains how to calculate the amount of tax that arises under the lifetime charge. In general terms the lifetime charge will apply to individuals who transfer property into a trust that is subject to the relevant property regime. See the Chargeable transfers and Occasions of

23 Mar 2022 10:31 | Produced by Tolley Read more Read more

Bare trusts ― income tax and CGT

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees

23 Mar 2022 10:40 | Produced by Tolley Read more Read more