A change to non-dom taxation, naturally will lead to an alteration to foreign trusts.
Protected trusts
Trust protections were announced in 2017 that allowed pre-existing settlor interested structures ’immunity’ from the significant changes announced in that Budget, if certain conditions were met.
This immunity will be removed for income and gains within protected non-resident trusts that arise after 6 April 2025. UK resident non-dom settlors will, from that date, be taxed in the same way as a domiciled settlor, i.e. on all income and gains arising within that settlor interested trust.
Income matching
For foreign non-settlor interested trusts, income matching for distributions to UK resident beneficiaries will continue for pre- 6 April 2025 income and gains, but from 6 April 2025, because non doms will be taxable on an arising basis, any transfers from such trusts to a UK resident beneficiary, anywhere in the world, will be subject to UK tax, as the remittance basis will no longer be available.
Transitional rules
Beneficiaries and settlors who are new arrivals, and still within their first four years of residency, will be able to receive income, benefits and capital from overseas trusts, without a tax charge.
Inheritance tax
It has been announced that there will be a consultation on non-dom inheritance tax reform so, to provide some certainty for the time being, non-UK assets settled by non-doms into offshore trusts (often known as excluded property trusts) before 6 April 2025 will be excluded from any inheritance tax changes.
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