A trust is an arrangement whereby a person (“the Settlor”) transfers assets to another person (“the Trustee”) so that they can be used to benefit a third person or group of persons (“the Beneficiaries”). Many trusts are established in low tax or tax haven jurisdictions because the trust is not subject to taxation in that location. However, it is also possible to establish a trust in the UK which will be free of taxation in the UK, provided certain conditions are met.
Establishing a UK trust will be particularly beneficial when use of an offshore trust is not appropriate or possible due to provisions in the Settlor’s or a Beneficiary’s jurisdictions of domicile or residence regarding the transfer of assets to trusts established in “black-listed” jurisdictions.
The Legal Position
A “UK Trust” is a trust established under English Law, the sole or first named trustee of which is a UK resident trust corporation. English law offers legal certainty and protection of the English legal system and, of course, trusts are well known to and recognised by the English judicial system.
Where trust assets require registration (e.g. land, company shares) the UK trustee corporation will normally be registered as the legal owner. This may often be preferable to registering an offshore person or entity as the legal owner of an asset.
A UK trust offers confidentiality and anonymity as there are no requirements to register the trust in the UK or to disclose details of the settlor or beneficiaries where settled by a non-resident or non-domiciled settlor. The trust need not be administered in the UK but can be if required.
If the trust is discretionary, that is if the trustee has discretion over distributions of both income and capital, it will be necessary to have a second non-UK resident trustee in order that the trust does not become UK resident. This can be provided by Verfides or alternatively we are happy to work with third parties as co-trustees such as the client’s existing legal or professional representatives.
Taxation of UK Trusts
The trustees of a UK trust will be exempt from UK taxation on trust income and capital gains provided that the following conditions are met:
- The settlor and beneficiaries are not domiciled, resident or ordinarily resident in the UK.
- The trust assets are situated outside the UK.1
- No UK sourced income or gains arise in the trust.1
- There is at least one non-UK resident trustee who is properly consulted on all relevant matters.
A UK trust can provide the ideal solution of an “onshore” trust but with the benefits normally only associated with tax haven locations. We would therefore recommend that the use of a UK trust is given serious consideration by non-UK residents wishing to create the trust.
We are able to offer a full range of services in respect of the establishment and administration of UK trusts including the provision of a UK resident corporate trustee.
The legal and taxation position of the settlor and beneficiaries of a UK trust will depend on the laws of their residence and/or domicile. Specific legal and taxation advice should be obtained by the settlor and/or beneficiaries in their country of residence before entering into any trust arrangements. We are often able to organise such advice or will work with the client’s existing advisors if required.
1 Providing there are no UK-resident beneficiaries, certain UK assets can be held and UK income and gains are free of UK tax (other than any tax deducted at source).