Offshore Trusts After the 2025 UK Reform 2026: What Changed for Non-Doms
An offshore trust is a trust whose trustees and assets sit outside the UK, long used by non-domiciled individuals to keep foreign income, gains and non-UK assets outside the UK tax net. From 6 April 2025 the rules that made these trusts work changed sharply. The old "protected settlement" status was removed, with no grandfathering for income or capital gains tax, so a UK-resident settlor is now taxed on the trust's foreign income and gains broadly as they arise. For inheritance tax, whether non-UK trust assets stay outside the net now depends on whether the settlor is a long-term resident. The honest headline is review, not panic. Many trusts still work.
This guide sits inside our wider look at what replaced the non-dom regime. For the full menu of options, start with our pillar on UK non-dom alternatives in 2026.
Key Takeaways
- From 6 April 2025 the protected-settlement regime was repealed with no grandfathering for income or CGT, so a UK-resident settlor is taxed on the trust's foreign income as it arises and gains as they accrue (HMRC TSEM4705, 2025).
- Inheritance tax now turns on whether the settlor is a long-term resident (LTR) at each chargeable event, not on domicile (HMRC IHTM27220, 2025).
- While the settlor is an LTR, non-UK trust assets enter the relevant-property regime: a 20% entry charge above the nil-rate band, up to 6% every ten years, plus exit charges.
- IHT has limited grandfathering: a GBP 5m cap on charges for property that was excluded at 30 October 2024. Income and CGT have none.
- Trusts still work for non-resident settlors, assets settled before the settlor became an LTR, and non-tax goals such as succession and asset protection.
What is an offshore trust, and why did non-doms use them?
An offshore trust is a legal arrangement where non-UK trustees hold assets for beneficiaries under non-UK governing law. Before 6 April 2025, a non-domiciled UK resident could settle foreign assets into such a trust and, under the protected-settlement rules, the trust's foreign income rolled up free of UK tax until a benefit or remittance arose (HMRC TSEM4705, 2025). That deferral was the central appeal.
Two separate jobs sat behind the structure, and the reform treats them differently. The first job was deferral: foreign income and gains accumulated inside the trust without an annual UK charge on the settlor. The second job was inheritance tax shelter: non-UK assets held in trust counted as excluded property, outside UK IHT, because the test looked at the settlor's domicile when the assets were settled. Both jobs leaned on the settlor's non-dom status, and both have now moved.
Why does the distinction matter so much? Because the answers diverge after April 2025. The deferral job has effectively ended for UK-resident settlors. The inheritance tax job survives in narrowed form, tied to a residence test rather than domicile. Reading the trust as a single tax switch, on or off, is the mistake we see most often. It is two switches, wired to different rules.
Citation capsule: Before 6 April 2025, a non-domiciled UK resident could settle foreign assets into an offshore trust whose foreign income rolled up free of UK tax until a benefit or remittance arose, under the protected-settlement rules (HMRC TSEM4705, 2025). The structure did two jobs: income and CGT deferral, and inheritance tax excluded-property shelter, each now governed by a different post-reform test.
What changed for income and capital gains tax on 6 April 2025?
From 6 April 2025 the protected-settlement protections were repealed outright, with no grandfathering, so a UK-resident settlor of a settlor-interested offshore trust is taxed on the trust's foreign income as it arises under ITTOIA 2005 section 624, and on gains as they accrue under TCGA 1992 section 86 (HMRC TSEM4705, 2025). The deferral that defined these trusts has gone.
The income tax change
Foreign income arising in a settlor-interested trust is now treated as the settlor's income and taxed in the year it arises (HMRC TSEM4705, 2025). There is no roll-up and no wait for a remittance. A UK-resident settlor who can benefit from the trust, or whose close family can, faces an annual charge on the trust's foreign income, computed broadly as if the settlor had received it directly.
The capital gains change
The CGT carve-out that suspended section 86 attribution for protected settlements has been removed. Trust gains now attribute to a UK-resident settlor as they accrue under TCGA 1992 section 86, and the settlor has a statutory right to recover the tax from the trustees (HMRC HS299, 2025). So a disposal inside the trust can create a personal tax bill for the settlor in the same year, whether or not any money leaves the trust.
What about income and gains built up before April 2025?
Here the rules are kinder, but only for IHT-distinct reasons. Foreign income and gains accumulated inside the trust before 6 April 2025 keep their old treatment: they are taxed when matched with a benefit paid to a UK resident after that date, not annually. The Temporary Repatriation Facility can then mop up some of those pre-2025 amounts at a reduced rate, which the later section covers. Note the key point clearly. This softer treatment applies to the old stockpile, not to new income and gains arising from April 2025 onward.
Citation capsule: From 6 April 2025 the protected-settlement rules were repealed with no grandfathering, so a UK-resident settlor is taxed on the trust's foreign income as it arises under ITTOIA 2005 section 624, and on gains as they accrue under TCGA 1992 section 86, with a right to recover the CGT from the trustees (HMRC TSEM4705; HS299, 2025). Pre-2025 accumulated amounts keep their old benefit-matched treatment.
How did the inheritance tax excluded-property rules change?
For inheritance tax, excluded-property status now depends on whether the settlor is a long-term resident at each chargeable event, not on the settlor's domicile when the assets were settled (HMRC IHTM27220, 2025). Assets settled while the settlor is not an LTR can stay excluded. Once the settlor is an LTR, non-UK trust assets enter the relevant-property regime.
The long-term resident test, in brief
Broadly, a person becomes a long-term resident after being UK-resident in at least 10 of the previous 20 tax years, and the status carries a tail of between three and ten years after leaving the UK. The full mechanics of the LTR test and the departure tail belong to our dedicated piece. For the detail, see our guide to UK inheritance tax for non-doms in 2026. This article uses the LTR test only as the trigger for the trust rules.
The relevant-property regime and the GBP 5m cap
Once non-UK trust assets are inside the relevant-property regime, three charges apply: a 20% entry charge on value above the nil-rate band, a periodic charge of up to 6% every ten years, and exit charges when assets leave (HMRC IHTM47022, 2025). A transitional cap then limits the charge for older trusts. Charges on property that was excluded property at 30 October 2024 are capped at GBP 5m per ten-year cycle.
Read the cap precisely, because it is the most misunderstood part of the reform. The GBP 5m cap limits the size of the charge. It does not keep the assets out of the relevant-property regime. Once the settlor is an LTR, property that was excluded at 30 October 2024 is inside the regime alongside everything else; the cap simply ceilings what the charge can grow to per ten-year cycle. Treating the cap as an exemption is a planning error.
One more distinction matters, and we flag it deliberately. Inheritance tax keeps this limited grandfathering, the 30 October 2024 reference date and the GBP 5m cap. Income tax and capital gains tax keep nothing. The protected-settlement repeal for income and CGT has no transitional shelter at all. Do not let the IHT cap create a false sense that the income and CGT positions are also softened. They are not.
Citation capsule: From 6 April 2025 a trust's non-UK assets are excluded property only while the settlor is not a long-term resident; once the settlor is an LTR they enter the relevant-property regime with a 20% entry charge above the nil-rate band, up to 6% every ten years, and exit charges (HMRC IHTM27220; IHTM47022, 2025). A GBP 5m cap limits, but does not remove, charges on property excluded at 30 October 2024.
How does the Temporary Repatriation Facility interact with offshore trusts?
The Temporary Repatriation Facility (TRF) is a three-year window, covering 2025/26, 2026/27 and 2027/28, that lets former remittance-basis users designate and bring in pre-6-April-2025 foreign income and gains at a reduced rate: 12% in 2025/26 and 2026/27, then 15% in 2027/28 (HMRC RDRM73400, 2025). It applies to historic amounts, not future trust income.
For offshore trusts, the TRF reaches the stockpile of foreign income and gains that built up inside the trust before April 2025. Where a benefit is later matched with those pre-2025 unattributed amounts, the TRF can let the settlor or beneficiary designate them at the reduced rate rather than face the normal charge (HMRC RDRM71000, 2025). The mechanics here are structure-specific and fiddly, so confirm the matching treatment with an adviser before designating.
What the TRF does not do is shelter future income. New foreign income and gains arising in the trust from 6 April 2025 fall under the repealed protected-settlement rules and are taxed on the UK-resident settlor as they arise. The TRF is a one-off cleanup for the past, on a three-year clock. It is not a permanent low rate for the trust going forward.
Citation capsule: The Temporary Repatriation Facility runs for 2025/26, 2026/27 and 2027/28, letting former remittance-basis users designate pre-6-April-2025 foreign income and gains at 12% in the first two years and 15% in the third (HMRC RDRM73400; RDRM71000, 2025). For trusts it can apply to pre-2025 amounts matched with a later benefit, but not to income arising after the reform.
When does an offshore trust still help, and when does it not?
An offshore trust still works in clearly defined cases: where the settlor is non-UK resident and not a long-term resident, where assets were settled before the settlor became an LTR, and where the goal is succession, governance or asset protection rather than tax deferral (HMRC IHTM27220, 2025). It no longer works as an income or CGT shelter for a UK-resident settlor.
The decisive variable has shifted. It used to be the settlor's domicile. Now it is the settlor's long-term-resident status, plus when the assets were settled. A trust whose settlor has left the UK and shed LTR status can still hold non-UK assets as excluded property. A trust funded before the settlor became an LTR can retain that status for those assets. So the answer is rarely a blanket yes or no. It depends on the settlor's residence path.
This is exactly why a reflexive unwind can backfire. Collapsing a trust can crystallise CGT exit charges and lose the non-tax protections, succession control and creditor resilience that survive the reform untouched. We have seen advisers recommend dismantling structures that, on review, still served a clear purpose. For the asset-protection angle specifically, see our piece on the offshore asset-protection trust in 2026. The reform is a prompt to review, not a reason to panic.
| Scenario | Still helps? | Why |
|---|---|---|
| Settlor non-UK resident, not a long-term resident | Yes | No settlor attribution on income or gains; non-UK assets stay excluded property |
| Assets settled before the settlor became an LTR | Partly | Those assets can retain excluded status; the GBP 5m cap shelters pre-30-October-2024 excluded property |
| Succession, governance or asset-protection goal | Yes | Non-tax benefits survive the reform untouched |
| UK-resident LTR keeping a settlor-interested trust for tax deferral | No | Foreign income and gains taxed as they arise; non-UK assets in the relevant-property regime |
| Forward structure once the settlor is non-resident (e.g. UAE) | Consider a Foundation | A UAE Foundation can be a cleaner orphan structure once non-resident; review existing trusts first |
For families weighing a forward structure, the comparison usually runs trust versus foundation. Our explainer on the family investment company versus foundation sets out the wrapper choices, and for the jurisdiction decision once you are looking at the Gulf, see DIFC versus ADGM foundations in 2026. To map your own trust and residence position to the right structure, you can talk to Ancova's team about how to protect your wealth.
Citation capsule: After the 2025 reform an offshore trust still works where the settlor is non-UK resident and not a long-term resident, where assets were settled before the settlor became an LTR, and for succession or asset-protection goals; it fails as an income or CGT shelter for a UK-resident LTR settlor (HMRC IHTM27220, 2025). The decisive variable is the settlor's residence, not domicile.
Frequently asked questions
Are offshore trusts still worth it after the 2025 UK reform?
Often yes, but for narrower reasons. From 6 April 2025 the protected-settlement rules were repealed with no grandfathering, so a UK-resident settlor is taxed on the trust's foreign income and gains as they arise (HMRC TSEM4705, 2025). Trusts still work for non-resident settlors, pre-LTR assets and non-tax goals. The message is review, not panic.
Is the income and CGT change to offshore trusts grandfathered?
No. The income and capital gains protections have no grandfathering at all. From 6 April 2025 a UK-resident settlor is taxed on the trust's foreign income as it arises and gains as they accrue (HMRC HS299, 2025). Only inheritance tax keeps a limited transitional cap, which is a separate rule.
What is the GBP 5m cap on offshore trust IHT charges?
It is a ceiling, not an exemption. Relevant-property charges on property that was excluded property at 30 October 2024 are capped at GBP 5m per ten-year cycle (HMRC IHTM47022, 2025). Once the settlor is a long-term resident, those assets are still inside the relevant-property regime; the cap only limits how large the charge can grow.
When are non-UK trust assets still excluded property?
While the settlor is not a long-term resident. Excluded-property status now turns on the settlor's LTR status at each chargeable event, not on domicile (HMRC IHTM27220, 2025). Assets settled before the settlor became an LTR can retain excluded status; once the settlor is an LTR, non-UK assets enter the relevant-property regime.
Should I unwind my offshore trust now?
Not reflexively. A trust held by a non-resident settlor, or funded before LTR status, can still deliver excluded-property treatment, and unwinding can crystallise CGT exit charges (HMRC IHTM27220, 2025). Non-tax benefits such as succession and asset protection survive untouched. Review your position with a regulated adviser before acting.
Sources
- HMRC, "Trusts, Settlements and Estates Manual TSEM4705: settlor-interested trusts and the protected-settlement changes," retrieved 13 June 2026, https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4705
- HMRC, "Income Tax and Capital Gains Tax: changes to the protected-settlement rules (HS299)," 2025, retrieved 13 June 2026, https://www.gov.uk/government/publications/income-tax-and-capital-gains-tax-changes-to-the-protected-settlement-rules
- HMRC, "Inheritance Tax Manual IHTM27220: excluded property and the long-term-resident test," retrieved 13 June 2026, https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm27220
- HMRC, "Inheritance Tax Manual IHTM47022: relevant-property charges and the GBP 5m cap," retrieved 13 June 2026, https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm47022
- HMRC, "Residence, Domicile and Remittance Basis Manual RDRM73400: Temporary Repatriation Facility rates and window," retrieved 13 June 2026, https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm73400
- HMRC, "Residence, Domicile and Remittance Basis Manual RDRM71000: Temporary Repatriation Facility overview," retrieved 13 June 2026, https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm71000
- GOV.UK, "Capping inheritance tax trust charges to GBP 5m for former non-doms," 2024, retrieved 13 June 2026, https://www.gov.uk/government/publications/capping-inheritance-tax-trust-charges
- legislation.gov.uk, "Finance Act 2025, Schedule 13 and Part 2 Chapter 4," retrieved 13 June 2026, https://www.legislation.gov.uk/ukpga/2025/contents
General information current to June 2026. This is not personalised advice; the transitional trust rules are intricate, so take regulated advice on your own position.
