How Trusts Are Taxed in the United Kingdom Today

From the one hand, an offshore trust can serve as a powerful instrument for protecting your assets and reducing your tax burden. On the other hand, sometimes trusts are used to evade taxes rather than reduce them in a legal way. For this reason, Governments of many countries monitor trusts, including foreign trusts, very closely. They don’t want their citizens to use trusts in tax evasion schemes. 

Taxation of trusts in the UK

The Government of Great Britain is not an exception. It fights tax evasion diligently and new regulations were introduced in 2017 to ascertain that offshore trusts registered by British citizens were not used for illegal purposes. However, this was only the beginning. This year (2023), new legislation has come into force that makes the settlors of offshore trusts disclose the names of the beneficiaries and register the trusts for TRS. Besides, some new taxes and fines have been introduced. 

The new regulations will affect mainly the settlors and the beneficiaries of offshore trusts. They are aimed at increasing the amount of taxes payable by offshore trusts and decreasing the opportunities for using trusts for tax evasion purposes.

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If you would like to create an offshore trust to protect your assets, plan inheritance or estate, please write to and request our professional assistance in the matter.  

Taxes on trusts in Great Britain in 2023

What taxes are payable by trusts, trustees, trustors, and trust beneficiaries in Great Britain today? When are the taxes due? 

The taxes that trusts have to pay depend on the trust type, the property-in-trust location, and the legal status of the trustor (domicile or non-domicile). It still makes good economic sense to create an offshore trust but we urge you not to jump the gun. Setting up a foreign trust is a demanding task and our professional assistance in the matter is going to come in very handy without doubt.  

Please inquire about the following items:

Taxes on accumulation trusts and discretionary trusts

If the accumulation or discretionary trust is registered in Great Britain, the Trustee is responsible for paying the taxes.

The first 1,000 GBP is taxed at the standard rate if there is only one trust. If there is a conglomeration of trusts, the total tax is divided by the number of individual trusts.  

Tax on income of up to 1,000 GBP:

  • Dividends – 8.75% (7.5% beginning April 6, 2023).
  • Other income – 20%.

Tax on income of more than 1,000 GBP:

  • Dividends – 39.35% (38.1% beginning April 6, 2023).
  • Other income – 45%.

Please note that if the profit is distributed to the trust beneficiaries, they have to pay the taxes, not the trustee. 

Capital gains tax on trusts

Resident trusts in the UK are taxed on capital gains that occur due to the growth of the asset value or sale of assets. Accumulation and discretionary trusts pay taxes at the following rates:

  • 20% – the common rate;
  • 28% – tax on capital gains that occur when residential property is sold. 

The tax-free amount cannot exceed 50% of the personal allowance (6,000 GBP beginning April 6, 2023 and 3,000 GBP beginning April 6, 2024).

Taxes on bare trusts

The resident beneficiary of a bare trust is responsible for paying the taxes in Great Britain. The income from the trust has to be reported to HMRC (the British tax authority).

Taxes on non-resident trusts

The taxation system applied to non-resident trusts is rather complicated in Great Britain. Each trust is considered individually and the tax rates depend on the trust type and the legal status (residency, domicile) of the trustor and the trust beneficiaries.

We recommend that you seek professional assistance from a tax accountant or a tax lawyer to figure out how your offshore (non-resident) trust is going to be taxed.

Please note that the trust whose trustee is not a British resident (for tax purposes) is considered a non-resident trust in Great Britain. Special taxation rules also apply to parental trusts and charitable trusts.

The trustee of a non-resident trust is taxable in Great Britain only if the income comes from British sources. Foreign assets and profits made abroad are not taxed in the UK: the taxes are due in the country of the trust residence (if applicable).

Whatever taxes a non-resident trust has to pay in Great Britain, they are payable at the rates specified above.

How trust incomes derived from British sources should be declared

You have to fill out the SA900 and/ or SA906 form to report the non-resident trust income obtained in Great Britain to the tax service.

If you are the settlor of a non-resident trust in the UK, the taxes on the trust income are payable as if it were your personal income. The following conditions need to be satisfied if the trust settlor is to be taxed:

  • The settlor has put some assets in trust;
  • The settlor and/ or their spouse/ partner has access to the income or the capital that the non-resident trust has.

Please note that the trust settlor is not taxed on the trust income if he/ she cannot derive any benefits from the trust.  

The settlor of a non-resident trust also pays taxes in Great Britain if the trust beneficiaries are minor children or if the trust makes payment to children below legal age. If the trustee is a non-resident of the UK, payments made in the benefit of children can be tax-exempt.

Capital gains tax for non-resident trusts in Great Britain

The capital gains tax is levied if the value of the assets increases. The assets include securities, land, and buildings. The non-resident trust has to pay the tax when the assets in trust have gained in value, have been sold, gifted, or disposed of.

The trustee of a non-resident trust does not have to pay the capital gains tax in the UK, as a rule. Instead, the tax is levied on the trust settlor and beneficiaries who gain profits from the business dealings specified above.

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Please note that trustees of non-resident trusts have to pay the inheritance tax only on the assets located outside the UK on the condition that the trust settlor was a British resident at the moment when the assets were put in trust.

Create a trust for asset protection and inheritance planning

His Majesty’s Revenues and Customs is an agency as greedy as the IRS in the United States. It wants British citizens and legal residents to pay taxes on whatever income they make. However, you don’t have to break the law to reduce your tax burden: there are legal ways of paying less in taxes. Establishing an offshore trust is one of the most efficient legal methods that you can use to reduce your taxes. If you make an offshore legal company the Trustee, your assets are also going to be perfectly secure.

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Please contact us to request professional assistance in creating an offshore trust and reducing your tax burden!

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