Offshore trusts: anti-avoidance
Published 13 September 2017
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Who is likely to be affected
This measure affects settlors and beneficiaries of an offshore trust where a UK resident individual receives an indirect payment or benefit from the trust.
General description of the measure
The measure ensures that payments from an offshore trust intended for a UK resident individual don’t escape tax when they are made via an overseas beneficiary or a remittance basis user.
Policy objective
The measure restores an objective of the rules relating to the taxation of income arising and gains accruing to offshore trusts, which is that UK residents are taxed when they receive a payment or benefit from a trust.
Background to the measure
At Summer Budget 2015 the government announced that it would bring an end to permanent foreign domicile (‘non-dom’) status. These reforms will bring a relatively large number of wealthy individuals, who are likely to have settled offshore trusts, within the scope of UK tax for the first time.
In December 2016, in its response to consultation on these reforms, the government announced that it would also take steps to tighten and add to the existing anti-avoidance rules that relate to the taxation of income arising and gains accruing to offshore trusts.
Detailed proposal
Operative date
The measure will have effect on or after 6 April 2018.
Current law
The law relating to the taxation of income arising, and gains accruing to, an overseas trust is set out in sections 86 and 87 of the Taxation of Chargeable Gains Act (TCGA) 1992 (attribution of gains to settlors and beneficiaries), sections 619 to 648 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 (settlements: amounts treated as income of settlor) and sections 714 to 751 of the Income Tax Act (ITA) 2007 (transfer of assets abroad).
Proposed revisions
This measure will amend TCGA 1992 so that where capital payments are made to a close family member of a UK resident settlor, the capital payments are taxable as if they were received by the settlor under a modified version of Section 87.
Capital payments to a non-resident made on or after 6 April 2018 won’t be matched against the pool of trust gains for the purposes of section 87, regardless of the domicile status of the settlor and whether or not the recipient of the payment is the settlor or another beneficiary of the trust.
ITTOIA 2005 will be amended so that where a benefit is provided to a close family member of a UK resident settlor, the benefits are taxable as if they were received by the settlor.
Amendments will also be made to TCGA 1992, ITTOIA 2005 and ITA 2007 to ensure that capital payments or benefits received by individuals who don’t pay tax on the distribution (because they are either non-resident or are non-domiciled remittance basis users who do not remit the payment) and that person then makes an onward gift to a UK resident, the recipient (the UK resident) is treated as if they had received a capital payment or benefit from the trust equal to the amount of the gift.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | |
|---|---|---|---|---|---|
This measure is not expected to have additional Exchequer impact.
This measure supports the Exchequer in its commitment to protect revenue that was set out in the costing for the package of reforms of the non-dom regime that incorporates trusts and anti-avoidance rules announced at Summer Budget 2015. The latest figures for the wider package are set out in Table 2.2 of Spring Budget 2017 as ‘Non-domiciles: abolish permanent status’. They have been certified by the Office for Budget Responsibility. More details can be found in the policy costing document published alongside Summer Budget 2015.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is an anti-avoidance measure impacting those individuals seeking to avoid tax. It is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is an anti-avoidance measure and therefore does not have an equality impact.
Impact on business including civil society organisations
This measure is expected to have no impact on businesses or civil society organisations.
The measure will impact on settlors and trustees of offshore trusts and UK resident individuals who receive payments or benefits (directly or indirectly) from an offshore trust.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be no significant operational impact on HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, contact:
Aidan Close
Email: aidan.close@hmrc.gsi.gov.uk
Telephone: 03000 585255
Declaration
Mel Stride MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.