Offshore Discretionary Trusts for Non-UK Domiciliaries: A Practical Guide

Overview

An offshore discretionary trust is one of the most widely used structures in international wealth planning. For non-UK domiciliaries — individuals whose permanent home (in the legal sense) is outside the UK — offshore trusts have historically offered significant tax and estate planning advantages. The 2025 non-dom reforms have changed the landscape, but offshore trusts remain a relevant and often essential tool in the structuring of international family wealth.

This guide explains how offshore discretionary trusts work, the roles of the key parties, UK tax treatment, reporting obligations, and when an offshore trust is — and is not — the right choice.

This is general information only and does not constitute legal or tax advice. Trust law and tax law are complex and jurisdiction-specific. Always obtain professional advice before establishing or amending a trust.

What Is a Discretionary Trust?

A trust is a legal arrangement under which one person (the settlor) transfers legal ownership of assets to another person or entity (the trustee) to hold and manage for the benefit of specified persons (the beneficiaries). The trust is governed by a trust deed that sets out the terms on which the trustees must act.

In a discretionary trust, the trustees have discretion over:

• Which beneficiaries (from a defined class) receive distributions
• How much each beneficiary receives
• Whether income is distributed or accumulated within the trust

This discretion is central to both the tax planning and the asset protection utility of the structure: because no beneficiary has a fixed entitlement, beneficiaries generally cannot be said to "own" trust assets, which protects those assets from beneficiaries' creditors and reduces exposure to IHT in certain circumstances.

The Parties to an Offshore Trust

The Settlor

The settlor establishes the trust and transfers assets into it. For a non-UK domiciliary, the settlor is typically an individual who has significant offshore assets and wishes to place them in a structure that provides estate planning, asset protection, or governance benefits.

Once the trust is established and assets are settled, the settlor ideally has no direct control over the trust assets — though in practice, reserved powers (exercised through the protector mechanism) can preserve a degree of influence without undermining the trust's effectiveness.

The Trustees

Trustees hold legal title to the trust assets and are responsible for managing them in accordance with the trust deed and in the interests of the beneficiaries. For a properly structured offshore trust:

• Trustees should be professional corporate trustees licensed in the relevant jurisdiction (Jersey, Guernsey, Cayman Islands, BVI, and Isle of Man are the most common jurisdictions for HNW offshore trusts).
• Individual trustees (family members or friends) are generally unsuitable for significant wealth structures: they carry personal liability, may lack the expertise to manage complex assets, and create continuity problems.
• The trustee company must be genuinely independent — not simply a corporate vehicle that does whatever the settlor instructs. HMRC and overseas tax authorities scrutinise whether a trust is a genuine trust or a sham.

The Beneficiaries

Beneficiaries are the individuals or entities who may benefit from the trust. In a discretionary trust, beneficiaries do not own the trust assets: they have a right to be considered for distributions, but no fixed entitlement. Beneficiaries are typically described in the trust deed by reference to a class (for example, "the settlor's children and remoter issue") rather than named individually.

The Protector

Many offshore trusts for HNW individuals include a protector — an individual appointed to oversee the trustees and hold certain reserved powers. Typical protector powers include:

• The power to appoint and remove trustees
• The power to veto certain decisions (for example, changing the trust's governing law or adding beneficiaries)
• The power to receive information from the trustees

The protector does not manage the trust day-to-day and should not exercise day-to-day control — that would undermine the trustees' independence. The settlor is often tempted to appoint themselves as protector; this is not inherently problematic but can create complications depending on the tax rules of the settlor's country of residence.

The Trust Deed

The trust deed is the constitutional document of the trust. It will typically set out:

• The name and date of the trust
• The identity and powers of the trustees
• The class of beneficiaries
• The trustee's powers of investment, distribution, and management
• The trust's governing law
• Any reserved powers of the protector or settlor
• The perpetuity period (the maximum duration of the trust)

A well-drafted trust deed is essential. It should be prepared by a specialist trust lawyer and tailored to the individual's circumstances. Generic or off-the-shelf trust deeds are rarely appropriate for significant wealth structures.

UK Tax Treatment of Offshore Trusts

Before the 2025 Reforms

Prior to April 2025, an offshore trust established by a non-UK domiciliary ("excluded property trust") enjoyed substantial protection from UK tax on non-UK assets. In particular:

• IHT: Non-UK assets within an excluded property trust fell outside the scope of UK IHT — there were no ten-year anniversary charges, no exit charges, and assets did not form part of the settlor's estate on death.
• Income tax and CGT: Under the protected settlement rules, the income and gains of an offshore trust were not automatically attributed to the UK-resident settlor each year. The remittance basis provided further shelter for non-UK domiciliary settlors.

Post-2025 Position

The 2025 non-dom reforms have altered the position of offshore trusts materially:

• IHT: The shift towards residence-based IHT exposure means that even trusts established by non-UK domiciliaries may become subject to IHT charges if the settlor has become a long-term UK resident (10 of the last 20 years). The specific rules on how the residence-based test applies to trust charges (ten-year anniversary charges, exit charges) were subject to ongoing technical consultation as at the time of writing — take specialist advice.
• Income and gains: Protected settlement status is affected by the abolition of the remittance basis. Settlors who are now taxed on an arising basis may find that income and gains within the trust are attributed to them annually.
• Existing trusts: Trusts established before April 2025 may have transitional protections, but these are fact-specific. Review of all existing offshore trust structures is strongly recommended.

Trust Registration Service (TRS)

The UK's Trust Registration Service was significantly expanded in 2022 and now requires the registration of most UK-tax-relevant trusts, including offshore trusts that:

• Have UK tax consequences (income tax, CGT, SDLT, or IHT)
• Hold UK assets
• Have a UK-resident trustee

Registration involves disclosing information about the settlor, trustees, protector, and beneficial owners to HMRC. In some circumstances, this information may be made available to third parties. Non-compliance carries financial penalties.

FATCA and CRS Reporting

Offshore trusts holding assets through financial accounts are within scope of both FATCA (the US Foreign Account Tax Compliance Act) and the OECD Common Reporting Standard (CRS). In practical terms:

• The trustee's bank or investment manager will report the trust's financial account information to the relevant tax authority in the jurisdiction where the account is held.
• That authority will automatically exchange the information with tax authorities in the account holders' (and beneficial owners') countries of tax residence.
• There is no meaningful offshore secrecy from tax authorities in CRS-participating countries (which include almost all significant financial jurisdictions).

Offshore trusts should be treated as transparent from a tax reporting perspective and should be declared on all relevant tax returns.

Trustee Duties and Powers

Trustees of an offshore trust owe fiduciary duties to the beneficiaries. These include:

• Duty of care: to act with the care and skill of a prudent person managing their own affairs (or, for professional trustees, a higher standard)
• Duty of prudent investment: to invest trust assets in a diversified and suitable manner
• Duty of impartiality: to balance the interests of income beneficiaries and remainder beneficiaries
• Duty to account: to maintain records and provide beneficiaries with information about the trust
• Duty of confidentiality: to keep trust affairs private (subject to legal and regulatory obligations)

Trustees who breach these duties can be personally liable to beneficiaries for any resulting loss. Professional trustees carry insurance against such liability.

When Is an Offshore Trust Appropriate?

Offshore trusts are most useful for:

• Estate planning: Placing assets outside the settlor's estate for IHT purposes (subject to the post-2025 rules)
• Succession planning: Ensuring that assets pass to the next generation in an orderly and tax-efficient way, particularly across multiple jurisdictions
• Asset protection: Protecting family wealth from future creditors, political risk, or litigation
• Family governance: Providing a formal structure for managing significant family wealth across multiple generations
• Holding international assets: A single trustee holding assets in multiple countries simplifies succession and reduces the need for probate in each jurisdiction

Offshore trusts are generally not appropriate for:

• Hiding assets from tax authorities — CRS and FATCA make this impossible and the consequences of non-compliance are severe
• Avoiding domestic creditor claims in relation to existing debts
• Arrangements where the settlor maintains such a degree of control that the trust is at risk of being treated as a sham

How Global Investments Can Help

Global Investments has extensive experience assisting internationally mobile high-net-worth clients with offshore trust planning. We work with a network of specialist trust lawyers and professional trustees across key jurisdictions including Jersey, Guernsey, Cayman Islands, Cyprus, and the BVI.

Whether you are establishing a new offshore trust in the light of the 2025 non-dom reforms, reviewing an existing structure, or considering whether a trust remains appropriate for your circumstances, our advisers can help you navigate the complexity and coordinate the professional team you need. Contact us to arrange a confidential discussion.