The abolition of the non-dom tax regime – Changes to Taxation of Offshore Trusts

October’s 2024 Autumn Budget brought significant changes to the way offshore trusts will be taxed from 6 April 2025.

With the trust protections abolished from that date, income and gains arising in the trust will be assessed directly on the settlor while they are resident in the UK unless they are able to benefit from the FIG regime, although even then the income and gains must be shown on their tax return.

In addition, long term residents will find that their non-UK assets held within trust structures, which could previously have been excluded property, are now subject to the relevant property regime, and will therefore face 10 yearly charges to Inheritance Tax (IHT) at up to 6% as well as exit charges on capital leaving the trust. There was a concession for pre-existing trusts that will mean that the assets of settlor interested non-UK trusts are not subject to the gift with reservation of benefit rules, meaning that they do not also form part of the settlor’s estate – a potential 40% IHT saving. However, this will only apply to trusts with assets settled prior to 29 October 2024.

There are a number of restructuring options available that can help to mitigate some of the exposure to tax for the settlor and trustees as well as some transitional rules allowing extraction of assets from the trust at a preferable tax rate for a limited amount of time. Which of these options is most beneficial will be very fact-specific and it is more important than ever to be speaking to your advisor and understanding the priorities of the affected parties to then be able to plot the best course of action.

Would you like to know more

If you would like to discuss the impact of these changes, please get in touch with your usual Blick Rothenberg contact, or one of the team using the form below.

You can find out more about the non-dom changes on our dedicated page.