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Offshore trusts and UK inheritance tax: A case study

Offshore trusts and UK inheritance tax: A case study

Monday, 16 March 2020

If you’re a trustee of an offshore trust or receive a payment from an offshore trust, you may think you don’t need to pay UK inheritance tax (IHT). However, in certain circumstances, inheritance tax is due. We recently advised the trustees of an offshore discretionary trust about their UK inheritance tax obligations.

The settlor was a non-UK domiciled individual therefore the trustees were under the impression that they were not liable to UK inheritance tax. However, as the trust assets included UK situs property, this was not the case. Inheritance tax is chargeable on the UK property of non-resident trusts with non-domiciled settlors. Even if the value of that property is less than the nil rate band (currently £325,000), there will usually be reporting obligations.

Trusts are potentially liable to a charge of IHT on the value of the trust every ten years and in addition to that, on any capital distributions from the trust. Both generally require them to file a return with HMRC.

For our trustees, it was a simple matter of having the trust assets valued and instructing us to file a return for the ten-year charge, calculate the tax payable and agree the position with HMRC. Often, however, where trustees have made capital distributions out of the trust or the trust has been in existence for a long time, it can be a more complicated process.

In the case of our client, the UK assets were subsequently sold, removing the trustees from the UK inheritance tax net. We then advised and reported on the capital gains tax aspects of the disposal.

In my next blog I’ll be looking at offshore trusts and the UK tax liability of beneficiaries.

Need help?

If you’re a trustee of an offshore trust or receive a payment from one, it’s always best to take professional advice to make sure you’re fully tax compliant.

Please speak to your usual MHA Larking Gowen contact on 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Cindy Chaplin

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