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Where Taxpayers and Advisers Meet

Income distribution from offshore trust

kebata
Posts:27
Joined:Tue Feb 21, 2012 7:10 am
Income distribution from offshore trust

Postby kebata » Thu Apr 19, 2018 6:47 pm

I am the settlor of an offshore trust the income from which is distributed to me in the UK and on which i pay UK tax.
On my demise, in order for the income not to be taxed within the trust it will need to be distributed. My wife and two children are beneficiaries. If they so wished can the income be distributed to all three of them so that the UK tax is paid by each of them according to their own total incomes?
Thank you

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Income distribution from offshore trust

Postby maths » Thu Apr 19, 2018 8:38 pm

Assuming you are UK domiciled and UK resident what made you settle property in an offshore trust?

The trust is a settlor interested trust and thus income is automatically attributed to you and thus on which you have a liability to income tax whether the trust income is distributed to you or not.

On your demise the trust will no longer be settlor interested.

What do the trust provisions provide happens on your death?

kebata
Posts:27
Joined:Tue Feb 21, 2012 7:10 am

Re: Income distribution from offshore trust

Postby kebata » Fri Apr 20, 2018 10:18 am

Sorry, i didn't explain fully. I have a domicile of origin outside UK and the trust was set up when i was resident overseas and before i became resident in the UK. The trust does name the beneficiaries and so i assume distribution to any of them will be straight forward, but just checking.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Income distribution from offshore trust

Postby AGoodman » Fri Apr 20, 2018 10:47 am

This is a complicated area and there are lots of essential facts missing from your explanation such as:

1. Location of assets and source of income.
2. Type of income
3. Current trusts (do you have a right to income or is it a discretionary payment)?
4. Who would tax the trustees if they did not distribute?

If the income is UK source then the only way to avoid the trustees paying tax themselves would be to appoint interests in possession to the three beneficiaries and mandate the income directly to them (ie not passing through the hands of the trustees). Otherwise, the trustees would pay but the beneficiaries would receive a tax credit. The tax credit could be set against their liability and/or provide for repayment (by HMRC) of the excess.

The complexity is such that you really need proper advice from advisers who know all the facts and have the documents.

kebata
Posts:27
Joined:Tue Feb 21, 2012 7:10 am

Re: Income distribution from offshore trust

Postby kebata » Fri Apr 20, 2018 2:03 pm

Thank you very much for your advice.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Income distribution from offshore trust

Postby maths » Fri Apr 20, 2018 8:59 pm

It is necessary for you to ascertain whether you were non-UK domiciled when you set up the trust and what your domicile status was on 6 April 2017.

The area is fraught with difficulties and if the monies are involved are significant specific advice is necessary.


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