Navigating the foreign income and gains regime for UK resident settlors of non-UK trusts

Benefits of FIG

The FIG regime allows qualifying individuals to exclude foreign income and gains from UK taxation for up to four consecutive tax years. Under FIG, and unlike under the remittance basis regime, foreign income and gains can be remitted to the UK without a UK tax charge.

Who qualifies?

The FIG regime is available to individuals who from 06 April 2025:

• Become UK tax resident under the statutory residence test (SRT);
• Have not been a UK tax resident for at least ten consecutive years prior to their arrival; and
• Are within their first four years of UK tax residence.

Implications for non-UK trusts

Under the remittance basis regime, settlors who were non-UK domiciled and created non-UK resident trusts could benefit from “protected trust” status. This allowed overseas income and gains of the trust to be sheltered from UK tax. These income/gains were not attributed to the settlor, and UK tax would become due if the income/gains were distributed to UK resident beneficiaries.

From 06 April 2025, the above protections will no longer apply to UK resident settlors who do not qualify for FIG. In this case, all income and gains will be attributed to the settlor and liable to UK tax. However, pre-April 2025 income and gains within the trust will remain protected. 

For a UK-resident individual settlor of a non-UK trust who qualifies for FIG, there is no attribution of income and gains. In addition, a distribution to the settlor of overseas income and gains can be made without triggering a UK tax liability. This distribution can be brought into the UK without incurring a UK tax charge. However, after the four-year window, settlors will be taxed on all trust income and gains.

Planning considerations

A few considerations are as follows:

• The UK resident settlor who qualifies for FIG leaving the UK after the 4-year period. Ceasing to be a resident, or remaining non-UK resident, brings other challenges and complexities which would require a review.
• Consideration of the settlor being excluded as a beneficiary of a non-UK trust in order to avoid attribution of income and gains. However, if the settlor’s spouse or minor children (those aged under 18) can benefit from the trust, then the income and gains will continue to be attributed to the settlor even though they can no longer directly benefit from it.
• Invest in offshore bonds as the income and gains from these are not liable to UK tax. Cumulative and annual withdrawals from the bond of no more than 5% of the original capital invested will not trigger a UK tax charge.

There are other planning considerations and the above represents but a few to consider. Trust structures need to be reviewed on a case-by-case basis to check for suitability to the family circumstances as well as other planning.

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Arvinder Matharu is a Partner in the tax department of Prager Metis. He focuses on providing tax consultancy on a range of issues to include trusts and estates, inheritance tax planning, capital gains tax, remittance basis and non-domiciled planning, residency planning, advising on R&D tax credits, review of tax minimisation strategies for US nationals living in the UK. Arvinder prides himself on explaining complex tax advice in a manner that the client can understand and take action from.