Offshore trusts – have reports of their demise been greatly exaggerated?
The UK’s tax landscape for non-UK domiciliary underwent a seismic shift on 6 April 2025, following the abolition of long-standing “trust protections” and significant changes to inheritance tax rules. These reforms, introduced after the Labour Budget of October 2024, have effectively removed the concept of domicile from the UK tax code, making the settlor’s status as a “non-dom” largely irrelevant.
As a result, many offshore trusts previously considered tax-efficient have lost their advantages.
Under the new regime, UK-resident settlors of offshore trusts are now exposed to income tax and capital gains tax on foreign income and gains where the trust is settlor-interested. The only exception applies to “qualifying new residents” within their first four years of UK residence.
Additionally, non-UK assets in such trusts are now subject to IHT if the settlor qualifies as a “long-term resident”, defined as someone resident in the UK for at least 10 of the previous 20 tax years. This exposure can persist for up to a decade after leaving the UK.
Despite these sweeping changes, experts argue that offshore trusts are far from obsolete. Trusts established by non-UK resident settlors for UK-based beneficiaries remain unaffected by the reforms, provided the settlor stays non-resident.
In such cases, the pre-2025 tax treatment continues to apply, making these structures viable for asset protection and succession planning, even if tax efficiency is diminished.
Other scenarios also preserve the utility of offshore trusts. For instance, if a UK-resident settlor and their spouse are irrevocably excluded from benefiting, income tax deferral can still be achieved.
Similarly, trusts can be structured to minimise chargeable gains or even leverage transparency for double tax treaty benefits, particularly for US persons managing cross-border obligations.
In some cases, “motive defences” may shield settlors from certain tax charges where the trust was created for non-UK tax reasons.
While the reforms have curtailed many traditional advantages, offshore trusts continue to offer strategic benefits in specific contexts. Advisors stress the importance of reviewing existing structures and considering alternatives, but for those prioritising asset protection, succession planning, or international tax alignment, reports of the demise of offshore trusts appear to have been greatly exaggerated.