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Survey of protected trusts and non-reporting funds

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The professional bodies are asking offshore trustees to complete a survey concerning a defect in the deemed-domicile rules introduced from April 2017. Deemed-domiciled settlors of offshore trusts will be left without trust protection for offshore income gains from non-reporting funds unless an amendment is made to the Offshore Funds (Tax) Regulations 2009. The survey is intended to gather evidence on the number of protected trusts potentially affected. See

The problem, as described by the CIOT and ICAEW, is that reg 19 of the Offshore Funds (Tax) Regulations (SI 2009/3001) states that offshore income gains (gains on the disposal on non-reporting funds) will only qualify as relevant foreign income of the individual if:

  • the remittance basis applies to an individual for a tax year; and
  • the individual is not domiciled in the UK in that year.

Long-term resident foreign domiciliaries (those UK-resident in at least 15 of the preceding 20 tax years) cannot access the remittance basis, so their offshore income gains will not be relevant foreign income. As such, they also do not come within the ‘protected foreign source income’ definition. The normal transfer of assets abroad rules in ITA 2007 s 720 will therefore apply to offshore income gains, so that ‘long-term resident’ settlors who can benefit from their trusts will be taxable on offshore income gains as they arise, even in cases where the settlor does not receive any distributions or benefits in kind from the trust.

Issue: 1404
Categories: News