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Definition of key terms

In order to understand non-resident trusts it's useful to clarify a few terms:

• for most types of trust, a ‘trustee’ is someone who holds, manages and makes the decisions about the assets (such as money, land or buildings) 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 HMRC6 – Residence, Domicile and the Remittance Basis.

• Residence Opens new window

• HMRC6 - Residence, Domicile and the Remittance Basis Opens new window

What ‘non-resident trusts’ means

Non-resident trusts are usually ones where:

• none of the trustees is 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: non-resident trusts Opens new window

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 HMRC and fill in forms 41G (Trust) and INT25.

Form 41G (Trust) asks you to give the name of the trust, trustee information and details of the assets in the trust.

Form INT25 asks for more detailed information on the following:

• 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 Trusts to discuss overseas tax or non-resident trusts issues.

• Phone or write to HMRC Trusts & Estates

• Email HMRC Trusts Opens new window

• Form 41G (Trust) trust details Opens new window

• Guidance on completing form INT25 Opens new window

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 depending on:

• whether it's a discretionary trust or an interest in possession trust
• the residence status of the settlors or beneficiaries

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'.

• HMRC residency: non-resident trusts Opens new window

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 (follow the link below to the guide on discretionary/accumulation trusts to find out more about the standard rate tax band)
• 42.5 per cent on dividend income from stocks and shares
• 50 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
• 50 per cent 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 per cent) on trust dividend income
• the basic rate (20 per cent) 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.

Find out more about tax rates for these types of trust by following the links below.

• Discretionary or accumulation trusts

• Interest in possession trusts

• Form SA900, supplementary pages and guidance notes Opens new window

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.

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.

• Parental trusts for children

• ESC A93 relief - more detail Opens new window

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 - 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.

• SA107 supplementary pages and guidance notes Opens new window

• ESC B18 relief - more detail Opens new window

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.

• Capital Gains Tax for non-resident trusts - detailed guidance Opens new window

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.

• Trusts and Inheritance Tax

Get professional help for your trust

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.

• Find a solicitor - the Law Society of England and Wales Opens new window

• Find a solicitor - the Law Society of Northern Ireland Opens new window

• Find a solicitor - the Law Society of Scotland Opens new window

• Help from the Society of Trust and Estate Practitioners (STEP) Opens new window

More useful links

• Completing form 64-8 Opens new window

• IHT100 - Inheritance Tax Account Opens new window

• Download 'Extra-Statutory Concessions B18 and A93' (PDF, 236K) Opens new window

• Help with PDF files

• Frequently asked questions: residence and domicile - non-resident trusts Opens new window

Useful contacts

• HMRC Trusts & Estates