Offshore Trust Review

Trust Taxation | International Tax

The trustees of a long-established offshore trust sought advice on the UK tax position of the trust and its beneficiaries.

The trust had been established several decades earlier by a non-UK domiciled settlor and was administered in a reputable offshore jurisdiction.

However, circumstances had changed significantly since the trust was created.

The original settlor had since died. Several beneficiaries had become UK resident. The trust held a mix of assets including quoted investments, property, and interests in private companies. And the trustees were contemplating making significant distributions to UK beneficiaries.

The trustees were concerned that they did not have a clear understanding of the UK tax position. The trust had historically operated on the basis that it was outside the UK tax net, but the trustees recognised that the position of UK resident beneficiaries needed careful consideration.

We were instructed to conduct a comprehensive review of the trust's UK tax position. Our work involved:

• Analysing the trust deed and any supplemental documents to understand the trust's structure, the identity of the settlor, the class of beneficiaries, and the powers of the trustees.
• Reviewing the history of the trust, including any appointments, advancements, or changes to the beneficial interests over the years.
• Considering the residence status of the trust for UK tax purposes, having regard to the location of the trustees and the place of administration.
• Analysing the application of various anti-avoidance provisions for income tax and CGT purposes.
• Considering the treatment of any stockpiled gains and income within the trust and the potential charges that could arise on distributions to UK beneficiaries.
• Reviewing the inheritance tax position, including the relevance of the excluded property rules and the potential application of relevant property charges.

Our review identified several issues that required attention. There were stockpiled gains within the trust that would be matched to beneficiaries on future distributions. The trustees' proposed distribution strategy would have crystallised significant tax liabilities. And there were opportunities to restructure the arrangements to achieve a more tax-efficient outcome.

We prepared a detailed report setting out our analysis and recommendations. The report explained the UK tax treatment in accessible terms, quantified the potential tax exposures, and set out a range of options for the trustees to consider.

Outcome

Comprehensive trust review completed with full analysis of income tax, capital gains tax, and inheritance tax positions.

Trustees provided with clear recommendations and a distribution strategy designed to minimise UK tax exposure for beneficiaries.

This case study is based on a real client matter. All identifying details have been removed or changed to protect client confidentiality.