Frequently asked questions

In relation to a new trust, how do you determine if the trustees are UK resident for income tax purposes?

The rules that determine whether a trust is UK resident for income tax purposes were updated in the Income Tax Act 2007 and are now set out in ss.474-476 (they are based on ICTA 1988/s.658E). The provisions of ITA 2007/s.474 state that for the purposes of the Income Taxes Acts, the trustees of a settlement are together treated as if they were a single person, distinct from the individuals who are acting as trustees at any point in time where it is necessary to apply the rules.

In accordance with ITA 2007/ss.475-6, with effect from 6 April 2007 where a trust is created by a settlor who is resident, ordinarily resident or domiciled in the UK at the relevant time*, all the trustees must be resident outside the UK if the trust is to be non-resident. If the settlor is non-resident** and not domiciled in the UK at the relevant time it is only necessary that there is one non-resident trustee for the trust to be treated as non-resident for income tax purposes. If the settlor is UK resident but not UK domiciled (or vice versa) at the relevant time, all trustees must be non-resident for the trust to avoid UK income tax.

* Where the settlement arises on the death of the settlor the relevant time is immediately before the settlor’s death. In all other circumstances the relevant time means each and every time a settlor makes a settlement or adds to an existing arrangement.

** non-resident – an individual who is neither resident nor ordinarily resident in the UK.