From: HM Revenue & Customs Part of: Living or working abroad or offshore and Trusts
Published: 17 June 2013 Last updated: 6 April 2016
This guide will help you understand the basic rules for trustees, settlors and beneficiaries of non-resident trusts.
Contents
What ‘non-resident trusts’ means
Who to contact if you’re setting up a non-resident trust
Non-resident trusts and Income Tax
Non-resident trusts and Capital Gains Tax
Non-resident trusts and Inheritance Tax
Contact the Trusts helpline
What ‘non-resident trusts’ means
Non-resident trusts are usually ones where:
none of the trustees are resident in the UK for tax purposes only some of the trustees are resident in the UK and the settlor of the trust wasn’t resident, ordinarily resident or domiciled in the UK when the trust was set up or funds added
Domicile usually refers to the country or legal jurisdiction (a state for example) where someone intends to make their permanent home - you can only have one place of domicile at any given time.
Residence is a complicated subject - more detailed guidance can be found in the RDR1 which covers the residence, domicile and remittance basis rules for the tax years 2012 to 2013 onwards.
The HMRC6 booklet should be used as a guide by residents or non-residents for information on rules affecting their tax liability in the UK up to the end of tax year 2012 to 2013 only.
Who to contact if you’re setting up a non-resident trust
If you’re setting up a trust that you think may be non-resident, you’ll need to contact HM Revenue & Customs (HMRC) and fill in form 41G(Trust).
You’ll be asked for the name of the trust, trustee information and details of the assets in the trust.
You can contact HMRC Trusts & Estates to discuss overseas tax or non-resident trusts issues.
Non-resident trusts and Income Tax
The tax rules for non-resident trusts are very complicated. Although there are general rules that apply to all non-resident trusts, each trust is different and is treated separately depending on:
whether it’s a discretionary trust or an interest in possession trust
the residence status of the settlors or beneficiaries
Guidance for trustees
Trustees of non-resident trusts don’t pay UK tax on foreign income they receive. For most discretionary or accumulation trusts trustees pay tax at:
the standard rate on the first £1,000 of taxable income
38.1 % on dividend income from stocks and shares
45 % on UK interest (including ‘free of tax to residents abroad’ securities) if a beneficiary - or someone who might become one - is resident in the UK
45 % on all other non-dividend income arising in the UK
For interest in possession trusts the trustees pay tax at:
the dividend ordinary rate (7.5 %) on trust dividend income
the basic rate (20 %) on all other types of income
Non-resident trustees should use form SA900 Trust and Estate Tax Return to declare any UK source income due from a non-resident trust. Where appropriate, they may also need to complete form SA906 - the Trust and Estate
Non-Residence supplementary pages.
Go to Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for further guidance.
Guidance for settlors
If you’re the settlor (the person who put assets into a trust) and you - or your spouse or civil partner - can benefit from the income or capital of a non-resident trust, then you’ll have to pay tax on the trust’s income as if it’s your own income.
The income of the trust is not treated as yours if you (or your spouse or civil partner) can’t benefit from it. However, if the beneficiaries include your children and the trust makes any payments to children of yours who are unmarried and below the age of 18, you will also have to pay Income Tax as if the payment to your child was your own income.
You can claim relief for tax on income paid to your unmarried children aged under 18 if the trustees are non-resident. This relief is given under Extra Statutory Concession, ESC A93 - go to page 12 of Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for further guidance.
Guidance for beneficiaries
If you’re a UK resident beneficiary of a non-resident trust you may have to complete a Self Assessment tax return and the SA107 supplementary pages. The guidance notes for these pages give details as to how you should complete them.
If you’re a UK resident and get income from a non-resident discretionary trust, you can get some tax relief if the trustees have already paid tax on the income. This relief is given by Extra Statutory Concession, ESC B18 - go to page 11 of Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for further guidance.
If you’re a non-resident beneficiary of a non-resident income in possession trust, you only need include income from a UK source on your tax return.
Go to Income Tax and Capital Gains Tax for non-resident trusts (PDF, 370KB, 21 pages) for further guidance.
Non-resident trusts and Capital Gains Tax
Capital Gains Tax is a tax on the gain in the value of assets such as shares, land or buildings. A trust may have to pay Capital Gains Tax if assets are sold, given away or exchanged (disposed of) and they’ve gone up in value since being put into trust.
Non-resident trustees don’t usually pay UK Capital Gains Tax. Instead, the settlor or the beneficiaries may have to pay tax on gains made by the non-resident trustees. But if you are a non-resident trustee and dispose of a UK residential property you may be liable to pay Capital Gains Tax. The tax rate for non-resident trustees is the same as for resident trustees and the annual exempt amount is also available.
You must report disposal of a UK residential property to HMRC within 30 days of the disposal using their online form.
Non resident trusts and Capital Gains Tax: HS299 Self Assessment helpsheet
Non-resident trusts and Inheritance Tax
Trusts, including non-resident trusts may have to pay Inheritance Tax on assets in the trust. Non-resident trusts will only have to pay it on assets situated outside the UK if the settlor was domiciled (or deemed domiciled) in the UK when the assets were put into the trust. Depending on the value of the assets in the trust, Inheritance Tax may be due when:
assets are put into the trust
the trust reaches a ten-year anniversary
assets are taken out of the trust or the trust ceases
It doesn’t matter if the trustees or beneficiaries are resident in the UK or not.
There is more guidance on trusts and Inheritance Tax.
Contact the Trusts helpline
You can contact the Trusts Helpline for more help. It’s best to get professional advice about non-resident trusts.
Contents
Document information
Published:
17 June 2013
Updated: 6 April 2016
From:
Tax residency and trusts
How your family trust will be treated for New Zealand tax purposes
Offshore trusts
Your obligations relating to your trust
What to do if you receive beneficiary income from a trust
How your family trust will be treated for New Zealand tax purposes
Trusts are not treated as separate entities for income tax purposes. Consequently, there are no rules in the Income Tax Act governing the residence of trusts.
The New Zealand tax obligations of your family trust will depend on how your trust is classified under New Zealand law.
The New Zealand trust regime is a "settlor" based regime. This means that the New Zealand tax treatment of the trust depends on where the settlor of the trust is resident.
The New Zealand trust regime defines three types of trusts:
A complying trust is an ordinary New Zealand resident trust with New Zealand resident trustees and a New Zealand resident settlor.
A foreign trust is a trust where the settlor is a non-resident at the time a distribution is made.
The distribution you receive from a foreign trust is not taxable if it is:
a distribution of realised capital gains or the payment out of the corpus of the trust.
A non-complying trust will occur when a trust was a foreign trust but the settlor has become a New Zealand tax resident.
As a trust does not have a legal personality, there is no concept of residency for trusts.
However, a trust is recognised as a New Zealand taxpayer and therefore New Zealand generally verifies the residency of the trustee.
Find out more about types of trusts
Offshore trusts
If you are a settlor of an offshore trust, it will be treated as a "foreign trust" for New Zealand tax purposes until you become a New Zealand tax resident. This might occur at the time:
your transitional residency period ceases to apply; or
you elect out of the transitional residency rules.
Once you become a New Zealand resident, your family trust will be treated as a "non-complying trust". You can make an election within 12 months for your family trust to become a complying trust.
Your obligations relating to your trust
Having determined the status of your family trust in New Zealand, the trust will have the following tax obligations:
If your family trust is a complying trust, the trust must file income tax returns and is required to pay tax on its worldwide income (i.e. all income whether it is derived in New Zealand or offshore) less any distributions of beneficiary income.
If your family trust is a foreign trust or a non-complying trust with New Zealand resident trustees, the trust is only taxable on New Zealand source income. A foreign trust will be required to make an additional disclosure.
If you are a settlor of your family trust which is a non-complying trust with non-New Zealand resident trustees, you as settlor are liable to pay income tax on the trust's world wide income as an agent for the trust.
Find out more about trusts and estates
What to do if you receive beneficiary income from a trust
Your tax obligation depends on the type of trust from which you receive the distribution.
A complying trust
You are taxable on beneficiary income received from a complying trust and you must return the income in your tax return. You are not liable for income tax if the distribution is accumulated income of the trust.
A foreign trust
The distribution you receive from a foreign trust is not taxable if it is:
a distribution of realised capital gains, or
the payment out of the corpus of the trust.
The exemption for capital gains does not apply to the gains the foreign trust derives from transactions between associated persons. All other distributions are taxable.
A non-complying trust
Distributions from a non-complying trust to a beneficiary are subject to full New Zealand tax at a rate of 45%. A New Zealand resident settlor might also be liable for the income tax of the trust as an agent of the trustees.
ATO CONFIRMS TAX CONCESSION FOR NZ CITIZENS
Monday, 22 July 2013
The Australian Taxation Office (ATO) recently released a tax ruling confirming that New Zealand citizens holding a Special Category Visa will be deemed to hold a Temporary Visa for the purpose of the Temporary Resident rules in the tax act.
This creates a unique tax concession for certain individuals to pay no Australian tax on foreign income and on capital gains made on disposal of Australian non-real property related assets (eg listed shares).
The tax act broadly provides that Temporary Residents only pay tax on Australian sourced income and certain foreign income that is derived as a result of remuneration as an employee or connected with employment. In addition, capital gains on foreign and Australian assets other than those connected with Australian real property should not be subject Australian tax.
Temporary residents are defined as individuals who:
a) Hold a temporary visa under the Migration Act;
b) Are not an Australian resident under the Social Security Act; and
c) Their Spouse is not an Australian resident under the Social Security Act
Certain exclusions apply to the definition.
When New Zealand citizens enter Australia using their New Zealand passport, they are issued a 'Special Category Visa' allowing them to remain and work in Australia, but not re-enter Australia if they leave (hence it is a temporary visa).
The Social Security Act definition of a resident is quite complex. However, it appears that most New Zealand citizens who have lived in Australia since before 26 February 2001 will be residents for the purposes of the Social Security Act.
In most cases it appears that New Zealand citizens who migrated to Australia after 26 February 2001 (and entered on a special category visa) and have not applied for a permanent resident visa or Australian citizenship, would not be an Australian resident for the purpose of the Social Security Act. These individuals who do not have an Australian resident spouse will be deemed Temporary Residents for Australian tax purposes.
Accordingly, those individuals who have migrated to Australia, but derive investment income overseas, or who invest in Australian shares or other non-property related assets and make a capital gain on sale should not be taxable in Australia on that income.
The migration law and taxation law around temporary residents is quite complex. This publication provides a broad summary based on our understanding of the law and is general advice only and should not be relied upon without seeking professional advice in relation to your own circumstances.
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