UK tax position of non-resident trusts

Produced by Tolley

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

  • UK tax position of non-resident trusts
  • Trust residence
  • Trust migration
  • Income tax
  • Trust with no UK resident beneficiaries
  • Non-UK resident trust with UK resident beneficiaries
  • Capital gains tax
  • The exit charge
  • Compliance
  • Inheritance tax

UK tax position of non-resident trusts

As with individuals and companies, the extent of a trust’s liability to 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 liability to income tax is restricted to UK source income. Its liability to capital gains tax is restricted to interests in UK land and the assets of a UK branch or agency. See below.

A trust’s liability to 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 liability to 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:

  1. Tax on UK settlors of non-resident trusts

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

  3. 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.

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

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

If at least one trustee is UK resident and at least one trustee is non-UK resident, the trust is UK resident if the settlor was resident or domiciled (including deemed domiciled) in the UK at the time of creating the trust.

These straightforward rules are subject to the caveat that a non-resident trustee who acts as trustee in the course of a business carried on by a

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