½Û×ÓÊÓƵ

Overview of income tax for beneficiaries of non-resident settlements

A non-resident trust is usually a foreign law trust governed by the laws of a country outside the UK, for example, Jersey¹.

The income tax treatment of the beneficiaries of a non-resident trust depends on whether the trust is an interest in possession settlement, where the beneficiary has some entitlement to the income of the trust or, alternatively, a discretionary settlement.

Whether a payment to beneficiaries is an income or capital payment is discussed at I5.1307.

Interest in possession (IIP) settlements

IIP beneficiary's entitlement

Where a trust is governed by foreign law the beneficiary's entitlement to the income of an interest in possession (IIP) trust, and hence their tax treatment, depends on the law of the jurisdiction governing the trust².

In some jurisdictions, the beneficiary's interest entitles them to the trust income as it arises and the source of the beneficiary's income is the underlying income of the trust³.