FAQ: Residence and domicile - non-resident trusts

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Will a deemed chargeable gain that arose when I gifted foreign assets to the trustees of a non UK resident settlement before 6 April 2008 become taxable if the trustees remit the property to the UK on or after 6 April 2008?

No, a deemed chargeable gain accruing on the gift of property to a non resident trust before 6 April 2008 will not become chargeable if the trustees remit the property or anything derived from it to the UK on or after 6 April 2008.

However where there was no real alienation of the income or gains by the individual, as for example in the case of Harmel v Wright, because the settlor retained effective control over them, then the position after 5 April has not changed. In such a case the income or gains could be taxed on the settlor.

Does the remittance basis apply to section 87 TCGA 1992?

Yes.

Is it correct that gains of offshore trustees realised prior to 6 April 2008 will not produce a tax charge under section 87 TCGA if matched to capital payments made to a non-domiciled beneficiary after 5 April 2008?

Yes, so long as the beneficiary remains domiciled outside the UK it does not matter that he/she has not made a claim for the remittance basis to apply at the time of the capital payment, provided that such payment is matched to pre 6 April 2008 gains. By pre 6 April 2008 gains we mean gains that were actually realised before 6 April 2008 or, if a rebasing election has been made, those gains which represent the pre 6 April 2008 element.

However, if a capital payment made on or after 6 April 2008 is matched to gains realised on or after 6 April 2008 (or the post 5 April 2008 element of such gains where a rebasing election has been made), then the payment will be taxable (on a remittance basis if the beneficiary is a remittance basis user and otherwise on an arising basis).

Is it correct that capital payments made in, or remitted to, the UK to non-domiciled beneficiaries before 6 April 2008 will not produce a tax charge under section 87 TCGA when matched to gains realised by the offshore trustees after 5 April 2008?

Yes, so long as the non-domicile is still not domiciled in the UK under general law in the year of charge. It will not be necessary for the beneficiary to be a remittance basis user if post 5 April 2008 gains are matched to capital payments made prior to 6 April 2008. There are however special rules to deal with matching of post 5 April 2008 trust gains to capital payments made between 12 March and 5 April 2008 inclusive.

Can you confirm that any accrued but unrealised trust gain which relates to a period prior to 6 April 2008 will not be taxed under the new rules on a non domiciled beneficiary?

It is possible for the trustees of any non-UK resident trust to elect that trust assets are deemed to have been rebased at market value on 6 April 2008. The election once made is irrevocable. The rebasing is in respect of assets both at the trust level and assets owned by companies whose gains are apportionable to the trust under section 13 TCGA 1992. Any gains representing the pre 6 April 2008 element are not taxed if matched to a capital payment made before or after 6 April 2008 irrespective of whether the non domiciled beneficiary is a remittance basis user in the year of charge.

However, if a rebasing election is not made, any gains realised on or after 6 April 2008 will be taxed if matched to a capital payment made on or after 6 April 2008 even if part of that gain accrued prior to 6 April 2008. The remittance basis will apply if the capital payment is made offshore to a remittance basis user.

Are capital gains on assets held by companies which are wholly owned by foreign trusts taxed on non-domiciled settlors or beneficiaries where the gains accrued but were not realised in the period before 6 April 2008?

No, not if the non-resident trust elects to rebase its assets and the gains are matched to a capital payment to a non-domiciled beneficiary.

Are Offshore Income Gains (OIGs) realised by foreign trusts taxed on the arising basis under sections 720-730 ITA 2007 by virtue of section 762(5) ICTA 1988, even where the settlor is a remittance basis user?

No, the remittance basis applies to transferors who are remittance basis users.

Will a settlor of a non-resident trust who is a remittance basis user be subject to tax on gains realised by the trust after 5 April 2008?

Non-domiciled settlors, whether or not they are remittance basis users, are not subject to tax under section 86 TCGA 1992. They are taxed on benefits or capital payments from the trust. The remittance basis applies where the settlor is a remittance basis user.

Does it make any difference where the assets in a non-resident trust or underlying non-resident company owned by the trust are situated?

The Capital Gains Tax treatment of assets owned by a non-resident trust or underlying non-resident company is the same whether the assets are situated in the UK or abroad. However, as under current law, any UK source income produced by the trust or company will be taxed on the UK resident settlor or transferor on an arising basis irrespective of whether they have received any benefit, if they have power to enjoy such income at the date it arises.

Different rules apply to gains realised by a non-resident company owned by the remittance basis user directly rather than through a trust.

When is an election for rebasing likely to be advantageous for me?

The decision as to whether to opt for rebasing can only be made by the trustees of a trust which is non-UK resident at 6 April 2008, and will depend on a number of different factors such as the level of unrealised gains within the structure and the tax status of those who receive capital payments. It is not up to the beneficiary or settlor.

The decision will have no impact on UK domiciled beneficiaries or settlors, because the date of actual disposal of the asset and the method of computing the gains remains the same. The rebasing simply means that trustees will need to keep a record of the pre-6 April 2008 element of any gain realised on a disposal to work out whether a capital payment made to a non domiciled beneficiary on or after 6 April 2008 is taxable. To the extent that pre-6 April 2008 gains are matched to post-5 April 2008 capital payments, they are not taxable.

The time limits for making an election do not start to run until the trust makes a capital payment to a UK resident beneficiary or it transfers property to another trust on or after 6 April 2008, whichever is the earlier date.

What if a trust is UK resident on 6 April 2008 but then emigrates?

A rebasing election cannot be made in those circumstances. The trust must be non-UK resident throughout the 2008-09 tax year even if it subsequently becomes UK resident.

As a non-UK domiciled settlor of a non-UK resident trust, will I have to pay any tax on income arising to the trustees of the trust?

Where income arises to the trustees of a non-UK resident trust then, if the trust is settlor-interested and the settlor is resident in the UK, the settlor will be chargeable to tax on the income. If the settlor claims, or is entitled to, the remittance basis then any foreign source income of the trustees will not be charged to tax on the settlor unless it is remitted to the UK.