Non-resident trusts

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.

The tax rules for non-resident trusts are very complicated.  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
  • the residence status of the settlors or beneficiaries

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 different rates.

For interest in possession trusts the trustees pay tax at:

  • the dividend ordinary rate on trust dividend income
  • the basic rate on all other types of income

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.

For further information regarding compliance and filing the various tax returns that trusts may need to file please contact RKG Consulting.