Understand the basic rules for trustees, settlors and beneficiaries of non-resident trusts.
What ‘non-resident trusts’ means
A non-resident trust is usually a trust when:
- none of the trustees are resident in the UK for tax purposes
- only some of the trustees are resident in the UK and the settlor of the trust was one of the following:
- not resident or not normally resident when the trust was set up or funds were added
- not domiciled or deemed domicile in the UK when the trust was set up or funds were added
Domicile usually refers to the country or legal jurisdiction where someone intends to make their permanent home (for example, a state). You can only have one place of domicile at any given time.
You can find out more about the residence and domicile rules which apply from 6 April 2013. The rules cover:
- deemed domicile from 6 April 2017
Who to contact if you’re setting up a non-resident trust
If you’re setting up a trust and you think it may be non-resident, you may need to register the trust. Find out more about when and how to register a trust.
To discuss overseas tax or non-resident trusts issues, contact the Trusts helpline.
What Income Tax you should pay
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:
- if it’s a bare trust, discretionary trust or an interest in possession trust
- if the settlor has an interest in the trust
- the residence status of the settlors or beneficiaries
If you are a trustee of a non-resident trust, you only pay UK tax on UK income you receive.
How much you need to pay as a trustee of a discretionary or accumulation trust
For most discretionary or accumulation trusts, trustees pay tax at:
- the standard rate on the first £1,000 of taxable income
- 39.35% 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
How much you need to pay as a trustee of an interest in possession trust
For interest in possession trusts, trustees pay tax at the:
- dividend ordinary rate (8.75%) on trust dividend income
- basic rate (20%) on all other types of income
How to declare any UK source income
You should use form SA900 Trust and Estate Tax Return to declare any UK source income due from the trust.
When appropriate, you may also need to complete form SA906 — the Trust and Estate Non-Residence supplementary pages.
Readfor more guidance.
How much you should pay if you are a settlor
You need to pay tax on your trust’s income as if it’s your own income if either:
- you are 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
You will get a tax credit for the UK tax paid by the trustees on the same income.
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 under 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 more guidance.
How much you should pay if you are a beneficiary
If you’re a UK resident beneficiary of a non-resident trust, you may need 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 more 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 more guidance.
What Capital Gains Tax you should pay
Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may need to pay the tax if assets have gone up in value since being put into the trust and are:
- given away
- exchanged (disposed of)
Trustees of non-resident trusts 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.
If you’re a trustee of a non-resident trust and dispose of UK property or land, you may be liable to pay Capital Gains Tax. You can find out more about Capital Gains Tax for UK property or land if you’re non-resident.
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 property or land to HMRC within 60 days of the completion date, using a Capital Gains Tax on UK property account.
Trustees of non-resident trusts that become liable to pay non-resident Capital Gains Tax, must be registered with HMRC before creating a Capital Gains Tax on UK property account. Find out more about when and how to register a trust.
If you’re a trustee of a non-resident trust, you must report the disposal of UK property or land, even if you have no tax to pay. If you have no tax to pay, you must use a Capital Gains Tax on UK property paper form to report the disposal.
Read the HS299 Self Assessment helpsheet to help you decide whether you have taxable capital gains as settlor of a non-resident trust.
What Inheritance Tax you should pay
Trustees of trusts, including of non-resident trusts, may have to pay Inheritance Tax on assets in the trust. Trustees of 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.