This guide will help you understand the basic rules for trustees, settlors and beneficiaries of non-resident trusts.
What ‘non-resident trusts’ means
Non-resident trusts are usually ones where:
- 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 wasn’t resident, ordinarily resident or domiciled in the UK when the trust was set up or funds added
Domicile usually refers to the country or legal jurisdiction (a state for example) where someone intends to make their permanent home - you can only have one place of domicile at any given time.
Residence is a complicated subject - more detailed guidance can be found in the RDR1 which covers the residence, domicile and remittance basis rules for the tax years 2012 to 2013 onwards.
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 contact HM Revenue & Customs (HMRC) and fill in form 41G(Trust).
You’ll be asked for the name of the trust, trustee information and details of the assets in the trust.
You can contact HMRC Trusts & Estates 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 don’t 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
- 37.5 % 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 the trustees pay tax at:
- the dividend ordinary rate (10 %) on trust dividend income
- the 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, they may also need to complete form SA906 - the Trust and Estate Non-Residence supplementary pages.
Go tofor further guidance.
Guidance for settlors
If you’re the settlor (the person who put assets into a trust) and you - or your spouse or civil partner - can benefit from the income or capital of a non-resident trust, then you’ll have to pay tax on the trust’s income as if it’s your own income.
The income of the trust is not treated as yours if you (or your spouse or civil partner) can’t benefit from it. However, if the beneficiaries include your children and the trust makes any payments to children of yours who are unmarried and below the age of 18, you will also have to pay Income Tax as if the payment to your child was your own income.
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 - go to 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 give details as to how you should complete them.
If you’re a UK resident and get income from a non-resident discretionary trust, you can get some tax relief if the trustees have already paid tax on the income. This relief is given by Extra Statutory Concession, ESC B18 - go to 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.
Go tofor 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 trust.
The trust will only have to pay the tax if the assets have increased in value above a certain allowance known as the ‘annual exempt amount’. Trustees are responsible for paying any Capital Gains Tax due.
If non-resident trustees replace UK resident trustees, they’ll have to pay Capital Gains Tax on gains made on the assets by the UK trustees up to the point at which the trustees change. This is because the trust is treated as selling and re-purchasing its assets at their market value on the changeover.
Otherwise non-resident trustees don’t pay UK Capital Gains Tax. Instead, the settlor or the beneficiaries may have to pay tax on gains made by the non-resident trustees.
Go tofor further guidance.
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 doesn’t matter if the trustees or beneficiaries are resident in the UK or not.
There is more guidance on trusts and Inheritance Tax.
Contact the Trusts helpline
You can contact the Trusts Helpline for more help. It’s best to get professional advice about non-resident trusts.