UK Offshore Trust Taxation After the April 2025 Reforms: A Practical Guide

April 2025 marked the most significant restructuring of the UK's non-domicile tax regime in decades. The remittance basis of taxation and the deemed domicile rules — the twin pillars that had sheltered offshore trust income and gains for long-term UK residents — were abolished and replaced with a new Foreign Income and Gains (FIG) regime. For settlors, trustees, and beneficiaries of offshore trusts with UK connections, the landscape has changed materially.

This guide sets out the practical implications for existing offshore trusts, the conditions under which trust structures may still serve a legitimate planning purpose, and the interaction with inheritance tax.

The Old Regime: A Brief Reminder

Under the pre-April 2025 rules, individuals who were UK resident but non-UK domiciled could use the "remittance basis" to avoid UK tax on foreign income and gains, provided those sums were not brought into the UK. After 15 years of UK residence in 20 years, individuals became "deemed domiciled" and lost access to the remittance basis — at which point many had either left the UK, restructured their affairs, or accepted that their foreign income would become taxable.

Offshore trusts created before an individual became deemed domiciled were "protected" under transitional provisions, meaning trust income and gains retained some shelter from UK tax for the original settlor even after they became deemed domiciled. This protection made offshore trusts a valuable tool for long-term UK residents from wealthy overseas families.

The New FIG Regime: What It Means

From 6 April 2025, the remittance basis and deemed domicile concepts were replaced by the Foreign Income and Gains regime. The key features are:

New arrivals get a four-year exemption. Individuals who have not been UK resident in any of the preceding 10 tax years qualify for the FIG regime when they arrive in the UK. For their first four tax years of UK residence, all foreign income and gains are exempt from UK tax, regardless of whether they are remitted to the UK. This is a significant improvement over the old remittance basis for short-stay visitors who can plan around the 4-year window.

After four years, full arising basis applies. Once the four-year FIG period expires, the individual is taxed on worldwide income and gains as they arise — no sheltering through non-remittance, no deemed domicile distinction. Foreign trust income becomes taxable in the UK from that point.

Existing trusts lost "protected" status. The protections that applied to offshore trusts established by non-doms before they became deemed domiciled were abolished. From April 2025, settlors who are UK resident beyond the four-year FIG window are taxed on trust income and gains under the standard settlor-interested trust rules.

Settlor-Interested Trusts: The Core Rule

A trust is "settlor-interested" if the settlor (or their spouse or minor children) can benefit from it. Under UK law, if a trust is settlor-interested, income arising within the trust is treated as the settlor's income for tax purposes — even if it is retained in the trust and never distributed. The settlor is taxed as if they received it directly.

This rule applied before 2025, but the loss of offshore trust protection means it now hits far more people. A UK resident settlor who previously relied on the protected foreign income exemption will find that trust income arising offshore — dividends, interest, rental income — is attributed to them and taxed at their marginal UK income tax rate (up to 45% for income above £125,140).

Capital gains within the trust are handled under the "s.87 pool" provisions: gains made by the trust accumulate in a pool, and are taxed on beneficiaries only when matched with capital distributions. However, for settlor-interested trusts, gains can also be attributed to the settlor directly under HMRC's "s.86" provisions. The interaction is complex and requires specialist advice.

Trust Protector Structures

A trust protector is a third party — often a trusted adviser, family member, or professional — who holds certain powers over the trust, typically including the power to appoint or remove trustees and to amend trust terms. The presence of a protector does not in itself affect the settlor-interested analysis.

However, protector structures serve important governance functions for offshore trusts: they provide a mechanism for the family to influence trust administration without the settlor or UK-resident beneficiaries retaining legal control. Where a settlor is concerned about trustee discretion or governance in a distant jurisdiction, a protector adds a layer of accountability.

For UK tax purposes, if the protector holds powers that effectively give the settlor or a connected person control over the trustees' decisions, HMRC may seek to argue that the trust lacks genuine independence — a point that has become more relevant post-reform.

When Offshore Trusts Still Make Sense

Despite the reform, offshore trusts are not obsolete for UK-connected families. Several scenarios remain where they serve a legitimate and valuable purpose.

Non-UK beneficiaries. If the primary beneficiaries of a trust are non-UK resident individuals — for example, adult children living overseas — income and gains distributed to them are not subject to UK tax in their hands (subject to their local rules). The trust can accumulate income and make distributions to non-UK beneficiaries without creating a UK tax charge, provided the settlor themselves has left the UK or is within the four-year FIG window.

IHT planning for non-UK assets. For non-UK domiciled individuals, the UK IHT exposure has historically been limited to UK-sited assets. Post-reform, the IHT rules for non-doms have also changed, with a new residence-based test effectively creating a "long-term UK resident" category — broadly, an individual who has been UK resident for 10 or more of the preceding 20 tax years — subject to worldwide IHT. Trusts established before a settlor crossed the 10-year threshold can shelter non-UK assets from IHT, because UK IHT generally does not reach into properly established offshore trusts over non-UK assets — though the rules are nuanced and periodic charges apply.

Asset protection. Offshore trusts in robust jurisdictions (Jersey, Guernsey, Cayman, Isle of Man, New Zealand) offer strong creditor protection, particularly for settlors operating in high-litigation environments. This benefit is unaffected by the tax reform.

Generational planning. Where a family's primary connection to the UK is through one generation, and subsequent generations are intended to live internationally, an offshore trust can provide a long-term structure for holding and distributing assets across jurisdictions without being subject to UK estate administration at each generational transfer.

Interaction with Inheritance Tax

The IHT treatment of offshore trusts post-2025 merits careful attention. The key points:

• Relevant property regime: Most offshore discretionary trusts are within the "relevant property regime" — subject to a 10-year anniversary charge (up to 6% of trust assets) and exit charges when assets leave the trust.
• Excluded property: Non-UK assets held in trust by a non-UK domiciled (or, post-reform, a non-long-term-resident) settlor qualify as "excluded property" — outside the relevant property regime entirely, meaning no periodic or exit charges. This is a substantial benefit for trusts holding offshore property, investments, or cash.
• UK assets in trust: Always within the relevant property regime, regardless of the settlor's domicile.

The post-reform IHT residence test — effectively 10 of the preceding 20 tax years for worldwide exposure — means trustees and advisers must track UK residence history carefully to determine whether any given trust's assets are excluded property or not.

Practical Steps for Existing Trust Arrangements

If you have an existing offshore trust and are UK resident, you should:

1. Review the settlor-interested position. Confirm whether you (or your spouse or minor children) remain potential beneficiaries. If so, income is attributable to you and must be reported via Self Assessment.
2. Assess the IHT position. Review whether the trust's assets are excluded property or within the relevant property regime. Obtain a current valuation for periodic charge calculations.
3. Consider restructuring. If the tax costs have increased materially, it may be worth considering whether the trust should be wound down, assets distributed, or the trust's terms amended (where permissible) to exclude UK-resident beneficiaries in certain circumstances.
4. Ensure trustee compliance. Offshore trustees have their own reporting obligations under the Common Reporting Standard (CRS). UK beneficiaries should be receiving annual information from trustees about income distributions to comply with their UK reporting requirements.

How Global Investments Can Help

Global Investments works with internationally mobile families and their advisers to review offshore trust structures in the context of the post-April 2025 UK tax regime. Whether you are a settlor seeking to understand your new UK tax exposure, a beneficiary unsure of your reporting obligations, or a trustee navigating the IHT periodic charge, our team can assist with analysis and co-ordination across jurisdictions.

Tax rules in this area are complex and individual circumstances vary significantly. The information in this article reflects the position as understood at mid-2026 and is subject to further HMRC guidance and legislative change. Professional advice tailored to your specific situation is essential before making any decisions about offshore trust structures.