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HMRC internal manual

Trusts, Settlements and Estates Manual

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Non-resident trusts: beneficiary’s chargeability - trust income - interest in possession trust - foreign law

A non-resident trust is likely to be a ‘foreign law’ trust. A foreign law trust is a trust that is governed by the laws of a country outside the United Kingdom, for example, Jersey.

If there is any doubt as to which law governs the trust, please refer to Trusts & Estates Technical Edinburgh - see Technical Help (available to HMRC users only) .

If the trust is governed by foreign law, the income of the trust to which the IIP beneficiary is entitled will depend on the foreign law jurisdiction in point.

In some jurisdictions the beneficiary’s interest entitles them to the trust income as it arises and the source of the beneficiary’s income is the underlying income of the trust. The beneficiary may not be entitled to certain amounts (see TSEM3762). This type of interest in possession trust is known as a ‘Baker type’ trust, after the case of Archer-Shee v Baker (11 TC 749).

In other jurisdictions the beneficiary’s interest consists of a right against the trustees to require them to pay over trust income after trust expenses. In such cases the beneficiary’s right to income from the trust is against the trustees, rather than in the underlying assets held in the trust. (INTM339540 - external users can find this guidance at ). This type of interest in possession trust is known as a ‘Garland type’ trust, after the case of Garland v Archer-Shee (15 TC 693).

Here is a list of countries showing if trusts governed by the laws of those countries are ‘Baker’ or ‘Garland’. If the country is not shown in the list, please refer to SPT Personal Tax International Advisory - see Technical Help (available to HMRC users only).