As with individuals and companies, the extent of a trust’s liability to UK taxation is dependent upon its residence status. A trust which is UK resident is liable to UK income tax and capital gains tax on its worldwide income and gains (subject to double tax relief where applicable).
If it is not UK resident, its liability to income tax is restricted to UK source income. Its liability to capital gains tax is restricted to interests in UK land and the assets of a UK branch or agency. See below.
A trust’s liability to inheritance tax is not determined by residence but by domicile of the settlor and where the trust property is situated.
Since non-resident trusts may escape liability to UK taxation, there are extensive anti-avoidance rules which charge UK residents who have created or benefited from them.
This guidance note outlines the incidence of UK taxation on the non-resident trust entity. Other notes in this sub-topic summarise the tax consequences for settlors and beneficiaries:
- Tax on UK settlors of non-resident trusts
- Tax on UK resident beneficiaries of non-resident trusts (overview)
- Non-domiciled and deemed domiciled settlors