US/Offshore trusts with UK resident settlors

With the new Labour government in charge, we know that there will be further changes to non-UK Trusts in addition to what the conservatives had proposed. I have detailed the key aspects below.

• Labour have indicated there would be no grandfathering of existing trusts. At this stage, it is safe to assume that even existing excluded property trusts will no longer benefit from IHT protection from April 2025.
• If the settlor is a long-term UK resident and also a beneficiary of the trust, then not only will trust assets become subject to periodic IHT charges but they will also form part of the settlor’s estate on death and therefore subject to inheritance tax at 40%. This is a very significant change and could have enormous implications for many trusts, particularly where the settlor is older or in poor health and so the risk is greater.
• Regarding income tax and capital gains tax, from 6 April 2025, foreign income and gains within trusts will be taxable on the settlor on an arising basis as if they owned the trust assets personally.
• Serious consideration should now be given to whether the settlor can afford to give up being a beneficiary of the trust.
• Ideally, any planning steps would be deferred until after draft legislation has been published. However, given the potentially significant tax implications, the trustees and the settlor may not have the luxury of waiting.
• Any restructuring implemented after Labour’s first budget, likely to be in September, may be too late if anti-forestalling measures are announced.
• Additionally for any non-doms with personal assets, they should consider steps they need to take to put themselves into a better tax position.

Please let us know if you would like to discuss any of these issues.