The tax rules for non-resident trusts are very complicated. This introductory guide will help you understand the basic rules for trustees, settlors and beneficiaries of non-resident trusts and tell you where to get more detailed information.
On this page:
In order to understand non-resident trusts it's useful to clarify a few terms:
'Residence' is a complicated subject - you should look at the guidance material below for a full definition.
For detailed explanations of 'domicile' and 'residence' of individuals, read the technical guidance in HM Revenue & Customs (HMRC) booklet HMRC6 - Residence, Domicile and the Remittance Basis.
Non-resident trusts are usually ones where:
For more detailed definitions of non-resident trusts, follow the link below.
If you’re setting up a trust that you think may be non-resident, you'll need to contact HMRC and fill in form 41G(Trust). You will 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.
The tax rules for non-resident trusts are very complicated. This guide gives only a basic introduction. Although there are general rules that apply to all non-resident trusts, each trust is different and is treated separately depending on:
You can find guidance on residency by following the link below or you can contact the Trusts Helpline for more help. However, it's best to get professional advice about non-resident trusts - see the section below 'Get professional help for your trust'.
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:
For interest in possession trusts the trustees pay tax at:
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.
If you’re the settlor 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. Find out more by following the link below to Parental trusts for children.
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 - find out more by following the link below.
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 - see below for more information.
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.
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.
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:
It doesn't matter if the trustees or beneficiaries are resident in the UK or not.
Understanding trusts can be difficult so you may want to work with a solicitor or tax adviser. Remember though that the trustee is still legally responsible for the trust's tax affairs. You'll find some links below to professional organisations - although not all professionals are registered with them.
If you want HMRC to communicate with your agent or professional representative on Income Tax and Capital Gains Tax matters, you'll need to fill in form 64-8. Follow the link below to find out more about completing form 64-8.
If you want HMRC to communicate with your agent or professional representative on Inheritance Tax issues you'll need to enter their details on form IHT100.