Understand the basic rules for trustees, settlors and beneficiaries of non-resident trusts.
What ‘non-resident trusts’ means
Non-resident trusts are usually:
- if none of the trustees are resident in the UK for tax purposes
- where only some of the trustees are resident in the UK and the settlor of the trust was one of the following:
- not resident
- not normally resident
- domiciled in the UK when the trust was set up or funds added
Domicile usually refers to the country or legal jurisdiction (for example, a state) where someone intends to make their permanent home. You can only have one place of domicile at any given time.
Residence, domicile and the remittance basis: RDR1 explains the rules which apply from 6 April 2013 about:
- remittance basis
The HMRC6 booklet should be used as a guide by residents or non-residents for information on rules affecting their tax liability in the UK up to the end of tax year 2012 to 2013 only.
Who to contact if you’re setting up a non-resident trust
If you’re setting up a trust that you think may be non-resident, you’ll need to register the trust.
You’ll be asked for some information about the trust, settlor, trustees, beneficiaries and assets in the trust.
Contact the Trusts helpline to discuss overseas tax or non-resident trusts issues.
Non-resident trusts and Income Tax
The tax rules for non-resident trusts are very complicated. Although there are general rules that apply to all non-resident trusts, each trust is different and is treated separately depending on:
- whether it’s a discretionary trust or an interest in possession trust
- the residence status of the settlors or beneficiaries
Guidance for trustees
Trustees of non-resident trusts do not pay UK tax on foreign income they receive. For most discretionary or accumulation trusts, trustees pay tax at:
- the standard rate on the first £1,000 of taxable income
- 38.1% on dividend income from stocks and shares
- 45% on UK interest (including ‘free of tax to residents abroad’ securities) if a beneficiary, or someone who might become one, is resident in the UK
- 45% on all other non-dividend income arising in the UK
For interest in possession trusts, trustees pay tax at the:
- dividend ordinary rate (7.5%) on trust dividend income
- basic rate (20%) on all other types of income
Non-resident trustees should use form SA900 Trust and Estate Tax Return to declare any UK source income due from a non-resident trust. Where appropriate, you may also need to complete form SA906 - the Trust and Estate Non-Residence supplementary pages.
Readfor further guidance.
Guidance for settlors
You’ll have to pay tax on your trust’s income as if it’s your own income if the following apply:
- you’re the settlor (the person who puts assets into a trust)
- you, your spouse or civil partner can benefit from the income or capital of a non-resident trust
The income of the trust is not treated as yours if you (or your spouse or civil partner) cannot benefit from it. However, you’ll also have to pay Income Tax if the:
- beneficiaries include your children
- trust makes any payments to children of yours who are unmarried and below the age of 18
You can claim relief for tax on income paid to your unmarried children aged under 18 if the trustees are non-resident. This relief is given under Extra Statutory Concession (ESC) A93. Read page 12 offor further guidance.
Guidance for beneficiaries
If you’re a UK resident beneficiary of a non-resident trust you may have to complete a Self Assessment tax return and the SA107 supplementary pages. The guidance notes for these pages tell you how to complete them.
If you’re a UK resident and get income from a non-resident discretionary trust, you can get tax relief if the trustees have already paid tax on the income. This relief is given under ESC B18. Read page 11 offor further guidance.
If you’re a non-resident beneficiary of a non-resident income in possession trust, you only need include income from a UK source on your tax return.
Readfor further guidance.
Non-resident trusts and Capital Gains Tax
Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into the trust.
Non-resident trustees do not usually pay UK Capital Gains Tax. Instead, the settlor or the beneficiaries may have to pay tax on gains made by the non-resident trustees. But if you’re a non-resident trustee and dispose of a UK residential property you may be liable to pay Capital Gains Tax. The tax rate for non-resident trustees is the same as for resident trustees and the annual exempt amount is also available.
You must report the disposal of a UK residential property to HMRC within 30 days of the disposal using the online form.
Read HS299 Self Assessment helpsheet to help you decide whether you have taxable capital gains as settlor of a non-resident trust.
Non-resident trusts and Inheritance Tax
Trusts, including non-resident trusts may have to pay Inheritance Tax on assets in the trust. Non-resident trusts will only have to pay it on assets situated outside the UK if the settlor was domiciled (or deemed domiciled) in the UK when the assets were put into the trust.
Depending on the value of the assets in the trust, Inheritance Tax may be due when:
- assets are put into the trust
- the trust reaches a ten-year anniversary
- assets are taken out of the trust or the trust ceases
It does not matter if the trustees or beneficiaries are resident in the UK or not.
Read trusts and Inheritance Tax for more information.
Contact the Trusts helpline for more help. It’s best to get professional advice about non-resident trusts.