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Non-resident trusts

Non-resident trusts

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:

Definition of key terms
What ‘non-resident trusts’ means
Who to contact if you’re setting up a non-resident trust
Non-resident trusts and Income Tax
Non-resident trusts and Capital Gains Tax
Non-resident trusts and Inheritance Tax
More useful links

Definition of key terms

In order to understand non-resident trusts, it will be useful to clarify a few terms:

for most types of trust, a ‘trustee’ is someone who manages the assets in the trust
a ‘settlor’ is someone who puts assets into the trust
a ‘beneficiary’ is someone who may receive income or capital from the trust
‘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 - 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 IR20 ‘Residents’ and non-residents’ liability to tax in the United Kingdom’.

Download IR20 ‘Residents’ and non-residents’ liability to tax in the United Kingdom’ (PDF 371K)

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What ‘non-resident trusts’ means

Non-resident trusts are generally 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

For more detailed definitions of non-resident trusts, follow the link below.

‘HMRC Residency guidance: Non-resident trusts’

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Who to contact if you’re setting up a non-resident trust

HMRC has a special office - HMRC Residency - that deals with overseas tax issues, including those of non-resident trusts.

If you’re setting up a trust that you think may be non-resident, you'll need to contact HMRC Residency and fill in forms 41G(Trust) and INT25.

Form 41G(Trust) asks you to give the name of the trust, trustee information, details of the assets in the trust and explain how it was set up.

Form INT25 asks for more detailed information on: changes in trusteeship; the assets in the trust; share ownership; the settlor; the beneficiaries; the law governing the trust; what return forms the trustees will need.

You can contact HMRC Residency at:

HMRC Residency
St John’s House Unit 358
Merton Road
Liverpool
L75 1BB

You can call the non-resident trusts section on Tel 0151 472 6238.

Download form 41G(Trust)

Form INT25 comprises a list of questions that can be found within the HMRC Residency guidance on non-resident trusts.

View form INT25

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Non-resident trusts and Income Tax

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 by HMRC.

If you’re affected by non-resident trusts it's best to get professional advice.

Alternatively you can refer to the HMRC guide, 'Residency: non-resident trusts' for more detailed guidance. You can also get help from HMRC Residency to work out what tax you may owe.

‘HMRC Residency guidance: Non-resident trusts’

Guidance for trustees

For most discretionary or accumulation trusts, trustees pay tax at:

the standard rate on the first £1,000 of taxable income (follow the link below to the guide on discretionary/accumulation trusts to find out more about the standard rate tax band)
32.5 per cent on dividend income
40 per cent 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
40 per cent all other non-dividend income arising in the UK

For interest in possession trusts, the trustees pay tax at:

the dividend ordinary rate (10 per cent) on trust dividend income
the basic rate (20 per cent) for all other types of income

Trustees of non-resident trusts don’t pay UK tax on foreign income they receive.

Non-resident trustees should use form SA900 Trust and Estate Tax Return to declare any taxes due from a non-resident trust. Where appropriate, they may also need to complete form SA906 - the Trust and Estate Non-Residence supplementary pages.

Find form SA900 Trust and Estate Tax Return, supplementary pages and guidance notes

Guidance for settlors

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.

If 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 it’s your own income. This applies if you’re the settlor but you and your spouse or civil partner have been excluded from benefiting from the assets put into the trust.

You can claim relief for tax on income paid to your minor, unmarried children. This relief is given under Extra Statutory Concession, ESC A93 - more information below.

Find more detail about ESC A93 relief

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. The supplementary pages and notes ‘SA107 Trusts etc’ give details of how income is to be shown.

Get help with filling form SA107 Trusts etc

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 income in possession beneficiary of a non-resident trust, you only need include income from a UK source on your tax return.

Different types of non-resident trust and how to calculate income

Find more detail about ESC B18 relief

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Non-resident trusts and Capital Gains Tax

If someone sells or transfers things like shares, property or possessions to or from a trust for more than their original value there may be Capital Gains Tax charge.

If non-resident trustees replace UK resident trustees, they’ll have to pay Capital Gains Tax on gains made by the UK trustees up to the point at which the trustees change. The trust is treated as selling and re-purchasing its assets 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.

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Non-resident trusts and Inheritance Tax

Trusts, including non-resident trusts, have to pay Inheritance Tax on assets in the trust. But non-resident trusts will only have to pay it on property situated outside the UK if the settlor was domiciled (or deemed domiciled) in the UK when the property was put into trust.

The trust may have to pay Inheritance Tax:

when assets are put into trust
when the trust reaches its ten-yearly anniversaries
when assets are distributed out of trust

It doesn’t matter if the trustees or beneficiaries are resident in the UK or not.

Find out more about Inheritance Tax and trusts

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