Using Trusts for Wealth Transfer as an Expat

Trusts have been used in English law for centuries as tools for wealth management, asset protection, and the orderly transfer of wealth between generations. For internationally mobile individuals, they serve an additional purpose: managing the interaction between different jurisdictions' succession rules, and in certain circumstances providing legitimate Inheritance Tax efficiency.

However, trusts are complex and frequently misunderstood. A poorly structured trust, created at the wrong time or for the wrong reasons, can impose unexpected tax costs or fail to achieve its intended purpose. This guide explains the key types of trust relevant to expat planning and sets out when they are — and are not — appropriate.

The basics of a trust

A trust is a legal arrangement in which one person (the settlor) transfers assets to another (the trustee) to hold and manage for the benefit of a third person or group of persons (the beneficiaries).

The trustee holds legal title to the assets but does not own them beneficially — the beneficial ownership rests with the beneficiaries, as defined by the trust deed. The trust deed is the governing document: it sets out the trustee's powers, the class of beneficiaries, the purpose of the trust, and any conditions on distributions.

Key roles:

• Settlor: creates and initially funds the trust. May also be a beneficiary in some structures.
• Trustee: manages the trust assets according to the trust deed and in the best interests of the beneficiaries. Can be an individual or a professional trustee company.
• Beneficiaries: those who benefit from the trust. In a discretionary trust, this is a defined class rather than specific named individuals with fixed interests.
• Protector: sometimes appointed in international trusts as an additional oversight role, with specific powers (such as the power to replace trustees).

Types of trust relevant to expats

Bare trusts

A bare trust is the simplest form. The beneficiary has an absolute, fixed right to the assets. The trustee holds legal title but has no discretion — they must hold the assets for the named beneficiary and transfer them on request.

Bare trusts are used for practical purposes — such as holding assets for minor children until they reach 18 — rather than for tax planning. For tax purposes, the assets in a bare trust are treated as belonging to the beneficiary, not the trustee.

Discretionary trusts

A discretionary trust gives the trustee full discretion over how, when, and to whom to distribute income and capital among a defined class of beneficiaries. This flexibility is the core advantage:

• Distributions can be tailored to beneficiaries' changing circumstances (need, tax position, capacity)
• No beneficiary has a fixed entitlement that could be pursued by their creditors
• The trustee can respond to future changes in law or family circumstances

Where the assets settled are within the UK IHT net, a discretionary trust is subject to the IHT trust regime: an entry charge of up to 20% on amounts above the nil rate band, a ten-year periodic charge of up to 6% of the trust value, and exit charges on distributions. Since the abolition of the non-dom regime on 6 April 2025, whether non-UK assets fall within this net depends on the settlor's residence: a long-term UK resident (broadly, UK-resident in at least 10 of the previous 20 tax years) is exposed on worldwide assets. This regime makes discretionary trusts tax-costly for such settlors unless specific conditions are met (such as the assets qualifying for business or agricultural property relief).

Interest in possession trusts

An interest in possession (IIP) trust gives at least one beneficiary (the life tenant) the right to the income of the trust during their lifetime, with the capital passing to different beneficiaries (the remaindermen) on the life tenant's death. These are commonly used in wills to provide an income for a surviving spouse while preserving capital for children.

The IHT treatment of IIP trusts created after March 2006 is generally the same as for discretionary trusts. Trusts created before that date may have different treatment.

Excluded property trusts

The excluded property trust is the most significant trust structure for internationally mobile expats from an IHT perspective. Note that the non-dom regime was abolished on 6 April 2025: UK IHT and excluded property status are now determined by long-term UK residence, not domicile. The key features:

• Settled by an individual who is not a long-term UK resident (broadly, not UK-resident in at least 10 of the previous 20 tax years) at the time the assets are settled
• Funded with non-UK sited assets (offshore investments, foreign cash accounts, etc.)
• The trust assets are "excluded property" for UK IHT — they sit outside the scope of the ten-year periodic charge and exit charges
• Assets settled before the settlor became a long-term UK resident generally retain their excluded property status; however, under the post-April 2025 rules, additions made once the settlor is a long-term UK resident may not qualify as excluded property

This makes timing absolutely critical. An excluded property trust should be established and funded while the settlor is not yet a long-term UK resident — broadly, before reaching 10 years of UK residence in the previous 20 tax years. Assets added too late — after long-term resident status attaches — may fall within the UK IHT net.

For a UK national who has been living abroad and accumulating non-UK assets, an excluded property trust can protect assets settled at the right time from UK IHT, provided it is established and funded before long-term UK resident status is acquired. This remains one of the most important planning opportunities available to internationally mobile expats, though the post-April 2025 reforms have narrowed it.

Settlor-interested trusts and the POAT charge

A trust is "settlor-interested" if the settlor or their spouse can benefit from it. For most purposes — and certainly for IHT — settlor-interested trusts do not achieve the intended protection: the settled assets remain in the settlor's estate for IHT if they can benefit.

The Pre-Owned Asset Tax (POAT) charge is a related anti-avoidance measure: if you give away assets but continue to benefit from them (living in a house you have gifted, or benefiting from assets in a trust you have settled), a tax charge may arise to counteract the avoidance strategy. POAT applies even where the legal arrangements appear valid.

Trust Registration Service (TRS)

Since October 2022, almost all UK trusts are required to register on HMRC's Trust Registration Service. The requirement also extends to:

• Non-UK express trusts that have UK tax consequences (income, CGT, IHT)
• Non-UK trusts with UK-resident trustees or beneficiaries

Registration requires disclosure of trustee and beneficial ownership information to HMRC. Most information is accessible to law enforcement and, in limited circumstances, to members of the public with a legitimate interest.

Failure to register by the required deadline carries financial penalties. If you are a settlor or trustee of any trust with a UK connection, TRS registration status should be verified.

When a trust is (and is not) appropriate

Trusts are appropriate when:

• A non-UK domiciled individual wishes to protect non-UK assets from future UK IHT (excluded property trust)
• Assets need to be held for minor children or beneficiaries who cannot manage them directly
• A controlled, discretionary distribution of wealth across generations is desired
• Asset protection from future creditors is a genuine, legitimate concern
• A specific estate planning outcome (such as funding an IHT liability via life assurance in trust) is required

Trusts are generally not appropriate when:

• The sole motivation is IHT avoidance by a UK domiciled settlor — the trust regime imposes its own charges that may exceed the saving
• The settlor wants to retain full control and access to the assets (which conflicts with the nature of a genuine trust)
• The additional cost and complexity of trust administration is not justified by the assets involved

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This article is for general information only and does not constitute legal, tax, or financial advice. Trust law is complex and the tax treatment of trusts depends heavily on individual circumstances. Always seek advice from a qualified solicitor with international expertise and a tax specialist before establishing a trust.

How Global Investments can help

Global Investments works alongside specialist trust lawyers and tax advisers to help internationally mobile clients assess whether a trust is appropriate for their circumstances and, if so, to ensure it is properly structured and funded. We have extensive experience with excluded property trust planning for long-term expats. Contact our team to discuss your estate planning needs, or read our guide on estate planning for expats.