UK Tax Treatment of Offshore Trusts: A Complete Guide for 2026

Offshore trusts have long been central to international wealth planning for UK-connected individuals. The combination of deferral of UK tax, protection of assets, and multi-generational planning potential makes them attractive — but only when structured correctly and kept in compliance. The legislative framework governing UK taxation of offshore trusts is dense, and significant reforms in 2025 and 2026 have materially altered the planning landscape.

This guide sets out the key concepts in plain terms, focusing on the rules most relevant to internationally mobile, high-net-worth individuals.

What Is an Offshore Trust?

An offshore trust is a trust established under the law of a non-UK jurisdiction and administered outside the UK. Common jurisdictions include the British Virgin Islands, Jersey, Guernsey, Cayman Islands, Isle of Man, and Singapore. The offshore nature affects primarily the administration of the trust assets — the UK tax treatment depends on the residence and domicile status of the settlor and beneficiaries, not simply the trust's domicile.

Settlor-Interested Trusts: Income and Gains Attributed Back

Where a UK-resident settlor (or their spouse or minor children) can benefit from a trust — either expressly or by the trust deed permitting benefits to a class that includes them — the trust is settlor-interested. The UK tax consequences are severe:

Income: Under ITTOIA 2005, s.624 (the "transfer of assets abroad" provisions more broadly, and s.620 for direct trust income), income arising to an offshore trust is attributed back to the UK-resident settlor and taxed as their own income in the year it arises. The settlor cannot defer UK income tax simply by routing income through an offshore trust. The rate applicable is the settlor's marginal rate — up to 45% for additional rate taxpayers, or 39.35% for dividend income.

Capital Gains: Under TCGA 1992, s.86, capital gains realised by offshore trustees are attributed to the UK-resident settlor where (i) the settlor has an interest in the trust and (ii) the trust holds assets settled by the settlor. The gains are treated as the settlor's own and subject to UK CGT in the year of disposal. There is no deferral. Gains on UK residential property are charged at 24%.

Practical consequence: A UK-resident individual who settles assets into an offshore trust while retaining (or giving their spouse) a benefit has not removed those assets from UK tax. The only way to avoid s.86 and s.624 attribution is to ensure the trust is genuinely non-settlor-interested — which means the settlor, their spouse, and minor children must be irrevocably excluded from benefit.

Non-Settlor-Interested Trusts and the s.87 Matching Rules

Where a trust is not settlor-interested — typically because the settlor is non-UK resident, or because the settlor and their family have been irrevocably excluded from benefit — capital gains arising in the trust are not immediately taxable to any individual. Instead, they accumulate in a "trust gains pool" and are charged only when benefits are received by UK-resident beneficiaries.

The mechanism is the s.87 matching rules (TCGA 1992, s.87). In simplified terms:

• Gains arising in the offshore trust after 17 March 1998 accumulate in a pool, ordered by tax year.
• When a UK-resident beneficiary receives a capital payment from the trust (whether in cash or assets), it is matched against the pool of trust gains — starting with the most recent year's gains and working backwards.
• The matched gain is taxed as a capital gain in the hands of the beneficiary in the year of receipt. Surcharges apply if the payment is made more than six years after the gains arose.

Onshore benefits (benefits received in the UK — property made available for use, cash payments, etc.) are taxable as income under the income benefits rules (ITTOIA 2005, Part 5, Chapter 2) where the trust has relevant income. The interaction between the income benefits and capital benefits rules is complex.

The result is that for non-resident settlors with offshore trusts benefiting UK-resident children or grandchildren, tax deferral is possible but not avoidance: the UK beneficiary pays CGT on receipt, potentially with surcharges.

The FIG Regime and Offshore Trusts (from April 2025)

The abolition of the non-domicile remittance basis from 6 April 2025 and its replacement by the Foreign Income and Gains (FIG) regime has significantly altered the offshore trust landscape.

New arrivals eligible for FIG (those with at least 10 years of non-UK residence before the current period of UK residence) benefit from a complete exemption for foreign income and gains for the first four UK tax years. This exemption extends to trust distributions and capital payments from offshore trusts — meaning that during the FIG window, a UK-resident beneficiary receiving a distribution from an offshore trust that would otherwise trigger a s.87 charge faces no UK tax.

Beyond year 4: Once the FIG window closes, standard rules apply. Planning should therefore focus on timing distributions within the first four years, where possible.

Pre-2017 "protected settlements": The concept of "protected trust status" — which previously sheltered gains in offshore trusts settled before 6 April 2017 by non-domiciled individuals from the attribution rules — was abolished from 6 April 2025 as part of the non-dom reform package. Trusts that previously had protected status now fall within the standard offshore trust rules.

Advice: individuals who had protected trust status should urgently review their position with specialist advisers, as the transitional provisions contain important windows for action.

The Temporary Repatriation Facility (TRF)

As a transitional measure to encourage compliance following the non-dom reform, HMRC introduced the Temporary Repatriation Facility for the 2025/26, 2026/27, and 2027/28 tax years. Previously offshore income and gains that were subject to the remittance basis can be remitted to the UK at reduced rates:

• 2025/26: 12%
• 2026/27: 12%
• 2027/28: 15%

This applies not only to personal offshore income and gains but also to certain trust distributions related to pre-April 2025 trust gains pools. Former remittance-basis users with substantial accumulated offshore income or gains in trust structures should consider whether to use the TRF window before it closes in April 2028.

IHT and Excluded Property Trusts: The 2025 Reform (Now in Force)

Historically, excluded property trusts (EPTs) were highly effective for IHT planning by non-UK domiciled individuals. If a non-UK domiciliary settled foreign-sited assets into an offshore trust, those assets were "excluded property" for IHT purposes — meaning they fell entirely outside the UK IHT net both during lifetime and on death, regardless of how long the settlor subsequently lived in the UK.

The Finance Act 2025 made a fundamental change, effective 6 April 2025. The excluded property status of assets in an EPT now depends on the long-term UK residence of the settlor at the time of each ten-year anniversary charge (for discretionary trusts), at the time of capital distributions, and at death. Specifically:

• If the settlor has been a long-term UK resident (defined as resident for 10 or more of the preceding 20 tax years) at the relevant time, the trust assets are brought within the IHT charge.
• The effect is that an EPT settled years ago by someone who has subsequently become a long-term UK resident has lost its excluded property status prospectively from 6 April 2025.

This is a significant change that is already in force. Individuals who relied on EPTs for IHT planning and who had accumulated 10 or more years of UK residence by April 2025 should already have reviewed their position; those approaching that threshold require urgent advice now.

Ten-year anniversary charges: For discretionary offshore trusts already within the periodic charge regime (relevant property trusts), the ten-year charge is calculated at up to 6% of the trust fund above the nil-rate band. Where excluded property status is lost, formerly exempt assets become relevant property.

Practical Considerations for Offshore Trust Structures

Governance and compliance: UK-connected offshore trusts must be reported on the UK self-assessment return (SA107). Non-compliance with the Trust Registration Service (TRS) requirements can result in penalties. From September 2022, most UK-tax-relevant trusts must be registered on the TRS, including offshore trusts with UK-resident beneficiaries or UK assets.

Trustee selection: Offshore trustees must be genuinely independent where the trust is intended to be non-settlor-interested. Letter of wishes can guide trustees, but legal control must rest with the trustees.

Investment management: Trustees typically delegate investment management. For UK CGT purposes, gains arising to offshore trustees are computed under UK tax rules — relevant for s.87 planning.

FATCA and CRS: Offshore trusts are subject to automatic exchange of information under CRS and FATCA. There is little practical secrecy available; compliance is the only viable approach.

Restructuring existing trusts: Some individuals may wish to wind up or restructure offshore trusts in light of the 2025 EPT reform. This can itself give rise to CGT and IHT charges and requires careful modelling.

Key Takeaways

Offshore trusts remain a legitimate and powerful planning tool for internationally mobile families. However, the days of simple offshore deferral for UK-resident individuals are largely over. The current planning considerations for HNW individuals are:

1. New UK arrivals: Use the FIG window (first four years) strategically — receive distributions from offshore trusts while no UK tax is due.
2. Long-term UK residents: The EPT IHT reform (in force from April 2025) requires immediate review of any excluded property trusts.
3. Former non-doms with protected trust status: That protection has been removed; act on the transitional provisions now.
4. TRF window: Consider crystallising and remitting accumulated trust gains at the reduced TRF rate before April 2028.

Tax rules in this area are complex, change frequently, and depend heavily on individual circumstances. Professional advice from a specialist UK tax adviser (ideally with experience of both offshore trust law and UK tax) is essential.

The value of investments may fall as well as rise. Tax rules change; the information in this article reflects legislation and HMRC guidance as of June 2026 but is not a substitute for professional advice tailored to your personal circumstances.

How Global Investments Can Help

Global Investments works with HNW internationally mobile families who hold, or are considering, offshore trust structures. Our advisers and specialist tax partners can review your existing structures in light of the 2025–2026 legislative changes, model the IHT impact of the proposed EPT reform, and co-ordinate with specialist trust lawyers and tax counsel to restructure where necessary. We advise clients across Cyprus, the UAE, the UK, and other jurisdictions, and have long experience of multi-jurisdictional estate and tax planning. Contact us to arrange a confidential review.