The Changing Offshore Trust Landscape

Historically offshore trusts have always provided tax deferral, confidentiality, and estate planning flexibility. UK residents could establish trusts while non-domiciled, benefiting from favorable tax treatment. The remittance basis allowed UK resident beneficiaries to receive capital distributions tax-free if funds remained offshore. Banking secrecy in traditional trust jurisdictions provided additional privacy protection.

Today’s reality differs markedly. The Common Reporting Standard ensures automatic information exchange between over 100 countries. The UK’s Trust Registration Service requires detailed disclosure of trust arrangements, with public access to certain information from 2024. Anti-avoidance provisions like the settlements legislation and transfer of assets abroad rules catch aggressive structures, while protected settlement benefits have been curtailed.

Despite these changes, there are still plenty of legitimate uses for offshore structure. Asset protection from creditors, divorce proceedings, and conflicting family members remains valuable. Succession planning for international families, particularly where forced heirship rules apply, benefits from the flexibility that trust structures can provide.

UK Tax Treatment Complexities

The UK’s April 2025 reforms fundamentally transformed the taxation of offshore trusts by abolishing the domicile-based system in favour of a residence-based regime. Under the old rules, non-UK domiciled settlors enjoyed “protected settlement” status that sheltered foreign income and gains arising within offshore trusts from immediate UK taxation, with the option to claim the remittance basis allowing tax deferral as long as funds remained offshore.

From 6 April 2025, these trust protections ceased entirely, meaning UK resident settlors of settlor-interested trusts now face immediate taxation on worldwide income and gains as they arise, regardless of domicile status.

For inheritance tax, UK liability was previously based on the settlor’s domicile at the time of settlement. This has been replaced by a “long-term resident” test, whereby offshore trust assets become subject to IHT charges of up to 6% every ten years if the settlor has been UK resident for at least 10 of the previous 20 tax years.

These changes effectively eliminate the historical tax advantages of offshore trusts for most UK resident settlors, though structures established before 30 October 2024 retain limited grandfathering protection.

Given these complexities, it’s essential to review whether your trust is still achieving its goals under current law.

Our Offshore Trust Advisory Services

We provide a thorough UK tax review and ongoing support for offshore trust structures. Our services include:

Comprehensive Trust Tax Review: We start by conducting a full review of your trust’s UK tax exposure. We identify how UK Income Tax, Capital Gains Tax, and Inheritance Tax apply under the new rules, and set out the key differences between these and the previous rules.

Strategic Advice: Maintain, Restructure, or Wind Up? Based on the review, we advise on whether it’s best to keep the trust as-is, tweak its structure, or even wind it up. If the trust still provides benefits (like asset protection or IHT shelter) and can be managed tax-efficiently, we’ll help you understand what is required to maintain it. If changes are needed, we might suggest restructuring,  for example, appointing (distributing) certain assets out of the trust, separating UK situs assets from foreign ones, or changing how the trust is administered to reduce UK tax impact. In some cases, if an offshore trust is no longer financially viable due to its increased UK tax exposure, we’ll discuss the option of winding it up and perhaps using alternative planning tools. Our aim is always to align the structure with your family’s evolving situation and the latest UK tax environment.

Liaison with Trustees and Investment Managers:We coordinate closely with the professional trustees, investment managers and family trust participants oversease. Effective communication is key: we ensure that trustees fully understand the UK tax implications of their decisions. We can also brief your investment managers on UK tax considerations. By working as a team with your trustees and financial advisors, we help keep the trust robustly compliant with UK tax requirements.

UK Tax Compliance for Trusts: We are also able to assist with necessary UK filings related to the trust. This can include preparing Self Assessment tax returns (SA900) for the trust if it has UK taxable income or gains. We also handle any Inheritance Tax reporting (such as IHT100 forms for chargeable events like 10-year anniversaries or asset distributions). If the trust sells UK property, we’ll ensure the required CGT returns are filed within 60 days.

Whether you’re establishing a new offshore trust or grappling with an existing one under new rules, we offer the incisive UK tax guidance you need. Contact us for a confidential consultation to discuss how to best manage your trust.