Offshore trusts—taxation

This Overview focuses on the taxation of the trustees, settlor and beneficiaries of offshore trusts and covers the income tax and capital gains tax (CGT) anti-avoidance legislation concerning settlements contained in Chapter 5 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005, Pt 5) and Chapter 2 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992, Pt III), as well as the inheritance tax (IHT) treatment of offshore trusts.

There is a wide range of structures that can be used to hold wealth; many use vehicles established outside the UK. The Overseas entity classification—trusts, usufructs and foundations Practice Note discusses how the UK tax system treats foreign entities. Each tax must be considered separately. An entity may be considered a settlement for IHT purposes, but may not be settled property for CGT purposes. UK tax law categorises foreign entities as companies, trusts or partnerships. Companies are opaque, while partnerships are transparent. Trusts are subject to a separate regime.

For general guidance on offshore trusts, see: Offshore trusts—general principles—overview.

Domicile of settlor

The domicile status of a UK-resident settlor

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Latest Private Client News

Private Client weekly highlights—21 November 2024

This week’s edition of Private Client highlights includes: (1) Wigglesworth v Beetson, in which the claimant failed in an action for estoppel and adverse possession; (2) the Hansard Society to host a briefing on parliamentary process for Assisted Dying Bill; (3) Khan v Khan, which considered family property and constructive trusts; (4) analysis of the Autumn Budget announcement to bring unused pension funds and death benefits within the scope of IHT; (5) Palmer v Sans, which found that there was no transaction at an undervalue where property was already held on trust for the transferee; (6) KA v FA (The Secretary of State for the Home Department intervening), where the court recognised an overseas adoption notwithstanding failure of common law test; and (7) Kireeva v Bedzhamov, in which the Supreme Court has confirmed the application of the immovables rule to English property.

Privy Council rules BVI company shares are not immovable property (Al Thani v Al Thani)

Private Client analysis: In a decision which will come as a relief to private individuals who own shares in BVI companies, the Privy Council has decided that section 245 of the BVI’s Business Companies Act 2004 does not have the effect of re-categorising shares as immovable property for the purposes of succession. Written by Kyle Bonnell, pupil at XXIV Old Buildings.

Supreme Court confirms application of immovables rule to English property

The Supreme Court has unanimously dismissed Ms Kireeva’s (Russian bankruptcy trustee’s) appeal to overturn the Court of Appeal’s’ decision regarding matters arising out of the bankruptcy of Mr Bedzhamov. Peter Declercq and Patrick Elliot, partners at DCQ Legal (who acted for Ms Kireeva), discuss the implications of the judgment.

UT finds FTT made errors when setting aside HMRC best judgment assessment (HMRC v Sintra Global)

Tax analysis: In Sintra Global, the Upper Tribunal (UT) set aside the decision of the First-tier Tax Tribunal (FTT) insofar as it related to a notice HMRC had issued to an individual making him liable for the payment of a civil evasion penalty charged against a company he was a director of. The UT found that the FTT had failed to follow the guidance provided by the Court of Appeal in Pegasus Birds in relation to the assessment the penalty was based on.