Charges to offshore trusts from 6 April 2025

There have been significant changes to the UK taxation of offshore trusts which took effect from 6 April 2025, forming part of a broader reform of the tax regime for non‑UK‑domiciled individuals (non‑doms).

These reforms fundamentally re-shape the income tax, capital gains tax (CGT), and inheritance tax (IHT) treatment of offshore trust structures, replacing the former domicile-based system with a residence-based framework. This article summarises the key tax changes that will apply to offshore trusts from 6 April 2025, including transitional rules, exposure for settlors and beneficiaries, and planning considerations.

Abolition of the remittance basis and move to arising basis

One of the most significant reforms is the abolition of the remittance basis from 6 April 2025. Under the previous regime, UK-resident non‑doms could elect to pay tax only on UK income and gains, with foreign income and gains (FIG) taxed only when remitted. Going forward, all UK residents (except qualifying new residents – detailed below) will be taxed on their worldwide income and gains as they arise, regardless of domicile.

This has major implications for settlors and beneficiaries of offshore trusts. Foreign income and gains arising within the trust structure – whether in the trust itself or in underlying non‑UK companies – can no longer be simply “protected” by keeping them offshore.

End of trust protections for settlors

The long‑standing “trust protections” introduced in April 2017 will be removed entirely. Historically, these protections allowed certain non‑dom settlors to avoid being taxed on FIG arising within “protected settlements” even after becoming deemed domiciled, so long as they did not add further property after becoming deemed domiciled.

From 6 April 2025, these protections cease. UK‑resident settlors with an interest in an offshore trust will be taxed as income and gains arise within the structure, not just when they personally receive benefits. This includes FIG arising in underlying non‑UK companies held by the trust.

In effect, settlor-interested trusts become fully look‑through for UK-resident settlors from 2025/26 onwards.

New relief for Qualifying New Residents (QNRs)

A new four-year foreign income and gains regime applies to individuals who become UK‑resident after a 10‑year period of non‑UK residence. These qualifying new residents:

Are not taxed on foreign income and foreign gains for their first four UK tax years, regardless of remittance. These individuals also benefit from similar reliefs in relation to offshore trusts in which they retain an interest during this period.

Importantly, QNR settlors will not be taxed on FIG arising within their offshore trusts during their four‑year window, although they may still be taxed on UK‑source income and gains arising within the structure.

This relief does not apply to long‑term UK residents or returning residents who have not met the 10‑year non-residence requirement.

Taxation of foreign income and gains in offshore trusts

Abolition of Protected Foreign Source Income (PFSI)

From 2025/26, the concept of protected foreign source income—which previously sheltered foreign income within some offshore structures from immediate UK tax—is abolished. Foreign income arising in an offshore trust will normally result in a UK tax liability either on the settlor (if settlor‑interested) or on the beneficiaries receiving distributions.

Beneficiary charges

Under the new arising‑basis regime:

• UK-resident beneficiaries will be taxed on capital payments or benefits matched to FIG.
• If FIG arose before 6 April 2025, it remains in a “protected pool” and will continue to be taxed under the pre‑2025 matching rules when distributed.
• For FIG arising after 6 April 2025, trustees must allocate and match distributions under the new FIG regime.

Transitional reliefs: The Temporary Repatriation Facility (TRF)

The Temporary Repatriation Facility (TRF) is a transitional measure allowing individuals who previously used the remittance basis to remit historic unremitted FIG to the UK at significantly reduced tax rates:

• 12% if claimed in 2025/26 or 2026/27
• 15% if claimed in 2027/28 (compared with up to 45% normally)

The TRF can apply to FIG within offshore trusts where distributions are matched to pre‑6 April 2025 pools. To qualify, the individual must have claimed the remittance basis at least once.

This one‑off mechanism offers substantial planning opportunities for beneficiaries and settlors who may wish to bring funds into the UK at low tax rates.

Inheritance tax reform and its impact on offshore trusts

The 2025 reforms also introduce a new residence-based system for inheritance tax (IHT). Under the current system (until 5 April 2025), a trust’s IHT exposure depends largely on the settlor’s domicile at the time the trust was created.

Going forward:

• Domicile is irrelevant. A person becomes a long‑term resident (LTR) for IHT once they have been UK‑resident for 10 out of the previous 20 tax years.
• When the settlor is an LTR, all trust assets fall into the UK’s relevant property regime and become subject to 10‑year charges and exit charges (up to a maximum rate of 6%).
• If the settlor later ceases to be an LTR, the trust exits the relevant property regime and may face an exit charge of up to 6%.
• The “gift with reservation of benefit” (GWROB) rules also apply where the settlor retains an interest, meaning the trust’s value may be included in the settlor’s estate at 40% IHT. However some relief applies for excluded property trusts created before 30 October 2024.

Implications for trustees and planning considerations

Trustees should prepare for:

Increased compliance

They must track FIG arising pre‑ and post‑6 April 2025 and understand how it affects beneficiary distributions under the new regime.

Potential exclusion of settlors as beneficiaries

To avoid arising‑basis charges on settlors, trustees may consider excluding settlors from benefitting.

Utilising the four‑year regime

Distributions may be favourably timed to beneficiaries who have not yet been UK‑resident for four tax years.

IHT monitoring

Trustees must closely monitor the settlor’s residence status to determine when the trust enters or exits the IHT relevant property regime.

From 6 April 2025, offshore trust taxation undergoes a fundamental overhaul. The move to a fully residence-based regime, combined with the removal of trust protections and the abolition of the remittance basis, dramatically increases the UK tax exposure of settlors and beneficiaries with offshore trust structures.

While transitional reliefs such as the TRF and the new four‑year regime offer planning opportunities, trustees and advisers must carefully navigate the new rules, particularly in relation to FIG tracking, settlor exposure, and the new IHT residence tests.

If you have any queries or would like further guidance please contact us today and speak with a member of our Global Mobility team.