Protected trusts and non-reporting funds – help us gather evidence

New rules for foreign domiciliaries and non-UK resident trusts were introduced from April 2017, by Finance (No 2) Act 2017 and Finance Act 2018. The rules contain anti-avoidance provisions but also protections to help settlors of offshore trusts affected by the changes. 

However, there is a technical defect in the legislation, relating to offshore income gains, which could cause serious problems. The professional bodies are gathering evidence on the extent of the problem and have prepared a short survey (more details below). 

We would encourage all offshore trustees to complete the survey and all advisers reading this to forward the link to offshore trustee contacts. 

At the end of this news item there is a link to a briefing document which gives full details of the problem and a link to the survey. 

The problem

The Finance (No 2) Act 2017 rules introduced deemed domiciled provisions for income tax and capital gains tax but also (among other changes) protections to help deemed domiciled settlors of offshore trusts affected by the changes. These are available provided the trust was established prior to the individual becoming deemed domiciled and the individual was not born in the UK with a UK domicile of origin. 

The technical defect is in the protected trust legislation for deemed domiciliaries, ie, those who become deemed domiciled by being resident in 15 or more of the immediately preceding 20 tax years and were not born in the UK with a UK domicile of origin. If not corrected, the defect will mean that offshore income gains (that is, gains realised on the disposal of non-reporting funds) do not qualify for trust protection and will, therefore, be taxable regardless whether or not they are retained in the trust. 

This is contrary to stated government policy that: “Non doms who have set up an offshore trust before they become deemed domiciled here under the 15 year rule will not be taxed on trust income and gains that are retained in the trust …” 

The survey

A working party of four professional bodies – ICAEW, the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners and the Law Society of England and Wales – has been looking at the domicile and trust changes and liaising with HMRC. We need information on the scale of this problem so we can provide HM Treasury and HMRC with evidence to support a persuasive argument to Ministers for the problem to be fixed and the necessary resources committed to doing so. 

As noted, the briefing document at the end of this news item contains a link to the survey. The survey is designed for trustees of offshore trust to complete. It is entirely confidential and should take no more than a couple of minutes. 

Send us your comments

In addition to the survey, advisers are encouraged to contact ICAEW Tax Faculty ( with any comments about the impact on their client base. Please put ‘Protected trusts and non-reporting funds’ in the subject line and let us know whether, when we pass the comments on to HMRC, you want them to be attributed to your firm or kept confidential.

Briefing document and survey