Changes to the treatment of non-domiciliaries from 6 April 2017 affected many UK-resident settlors of offshore trusts.
Updated 27 August 2019
Further changes from 6 April 2018 also affect UK-resident beneficiaries of such trusts.
Before 6 April 2017, if an offshore trust was ‘settlor interested’, the settlor, if both UK-resident and domiciled, was subject to capital gains tax (CGT) on the trustees’ gains as they arose.
From 6 April 2017, this also applied if settlors were deemed domiciled because they had a domicile of origin in the UK and were born here. It also applied if settlors were otherwise deemed domiciled (because they’d been resident for at least 15 of the previous 20 tax years), once property or value is added to the trust by the settlor.
A trust is ‘settlor-interested’ for CGT purposes if it includes among its beneficiaries the settlor, the settlor’s spouse or civil partner, the settlor’s children or grandchildren. It is ‘settlor-interested’ for income tax purposes if the beneficiaries include the settlor or the settlor’s spouse or civil partner.
If the offshore trust’s gains are not chargeable on the settlor, a CGT liability falls on UK-resident recipients of capital payments that are matched with trust gains.
A similar treatment applies for income tax purposes.
Changes from 6 April 2018
The changes from 6 April 2018 disregarded capital payments to non residents, and so not reduce the trust gains that might be matched with capital payments to a UK resident which might result in a CGT liability. Save for the exceptions mentioned below, this applied to capital payments made after 5 April 2018 and also to capital payments made before 6 April 2018 not then matched with trust gains.
Capital payments are not disregarded in the following three exceptions:
- If they are made in the tax year that the trust ends, and if received by at least one nonresident and one UK resident,
- If they are made to someone who proves to be a temporary non-resident (who is taxed in the year of return), and
- If the settlor is UK-resident and the capital payment is made to a ‘close member of the settlor’s family’ after 5 April 2018. In that case the settlor is taxable, but may recover the tax paid from the actual recipient. Close family members are considered to be the settlor’s spouse or civil partner (or those living together as such), the settlor’s children or step-children under 18.
The other major change from 6 April 2018 was to tax a UK-resident recipient of an onward gift, where the gift is received, within three years of the donor getting a capital payment, if the gift was intended at the outset and if the donor is either a remittance basis user or not UK-resident. Similar changes are made to the income tax legislation affecting the settlors and beneficiaries of offshore trusts and of offshore companies and other structures affected by the ‘transfers of assets abroad’.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
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