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Key considerations for a UK-resident beneficiary living in the US

Key considerations for a UK-resident beneficiary living in the US

Trusts can be treated very differently for UK and US purposes. If a UK-resident beneficiary of a UK resident trust is looking to move to the US, it is important that advice is taken proactively to ensure that the trust is treated correctly for US tax purposes.

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What do we need to consider?

The first point to consider is whether the trust will remain a UK-resident trust. This is dependent on several factors including the legal jurisdiction of the trust and the residency of the trustees.

The second consideration is whether the trust is a grantor or non-grantor trust. This is necessary as the two forms of trusts are taxed very differently in the US. For a trust to be a grantor trust the trust’s grantor or settlor must retain a sufficient level of control over the trust. If the trust is a grantor trust, then the income and gains will be taxable to the grantor. If the grantor is not a US person, then no US Income Tax will be payable unless there is US-sourced income in the trust.

A trust is considered a non-grantor trust if certain levels of control are not retained or after the grantor has died. In such a case, the trust will be taxable when distributions are made to US persons. For US purposes, distributions are defined broadly and can include school fees or certain non-qualified loans.

What reporting is required?

If the trust remains a UK resident trust, then the US beneficiary will need to file Form 3520 to report any distributions received from the trust. The beneficiary can elect for the distribution to be treated either as ordinary income under the so-called ‘default method’, or for the distribution to retain the character of the income and gains arising to the trust. If the latter option is selected, the beneficiary will also be required to file a Foreign Non-Grantor Statement which summarises the nature of the distribution. There may also be additional forms that need to be filed.

How we can help

Our US/UK Trust and Family Wealth team is specialised in providing advice around trusts reporting requirements and can help plan distributions to US beneficiaries. As we have knowledge of trusts in both jurisdictions, we can help you mitigate double taxation and ensure any tax planning undertaken works in both jurisdictions.

Would you like to know more?

If you would like to discuss how the above may affect you and your tax affairs, please get in touch with your usual Blick Rothenberg contact, or one of the team using the form below.

Personal tax is one of the most complex areas of wealth management and can significantly erode your wealth over time

Blick Rothenberg is considered to be market leaders in the taxation of non-UK domiciled individuals and offshore trusts, as well as cross-border personal taxation.

We have a strong base of clients in the UK and a broad and longstanding international focus too, acting for a large number of non-UK domiciled individuals and international families. So, we understand the complexities that US citizens face when living, working and operating businesses in the UK.

Whether you are a start-up entrepreneur, a wealthy family with complex affairs, or a business executive, our dual-qualified team of tax advisers will look after your US UK personal tax affairs as well as those of your business.

If you wish us to contact you or want to discuss your situation please complete the form on this page and one of our team will be in touch.

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