Alongside the non-domiciled (non-dom) tax changes, the UK’s Finance Act 2025 brings sweeping reforms to the taxation of offshore trusts, fundamentally altering the landscape for settlors, trustees, and beneficiaries with UK connections.. Below, we outline the key changes and their practical implications.
1. End of the remittance basis and move to residence-based taxation
From 6 April 2025, the remittance basis of taxation is abolished for current foreign income and gains. All UK residents (with the exception of qualifying new residents) will be taxed on their worldwide income and gains as they arise, regardless of their domicile status. The remittance basis will only apply to income and gains arising up to, and including, the 2024-25 tax year, and only if remitted before 6 April 2025.
Implication:
UK residents who have settled offshore trusts and UK residents who benefit from them will no longer be able to shelter foreign income and gains from UK tax by keeping them offshore. Foreign Income and Gains realised before 6 April 2025 that has not been remitted to the UK will be taxed if remitted after 5 April 2025.
2. Relief for “qualifying new residents”
A new relief is introduced for individuals who become UK tax resident after a period of at least 10 consecutive years of non-residence. These “qualifying new residents” can claim up to four years of full relief from UK tax on foreign income and gains, including those arising in offshore trusts, provided certain conditions are met.
Implication:
This relief offers a valuable window for new arrivals to the UK, but is not available to long-term residents or returning UK residents who have not met the 10-year non-residence requirement.
3. Offshore trust income: Abolition of protected foreign source income
The concept of “protected foreign source income” (PFSI), which previously allowed certain foreign income in offshore trusts to be protected from immediate UK tax charges, is abolished. From 2025-26, foreign income arising in offshore trusts is generally subject to UK tax as it arises on the settlor if they are resident in the UK or beneficiaries in receipt of distributions or benefits, unless the qualifying new resident relief applies.
Implication:
Trustees and beneficiaries must prepare for the immediate UK tax exposure on foreign income, with no further protection for non-doms. This includes the extraction of the income to fund UK tax payments that will fall due. These changes will not affect the treatment of income that has been accumulated in the Trust at 5 April 2025 and subsequently distributed to UK resident beneficiaries.
4. Settlements legislation and transfer of assets abroad
The settlements code and transfer of assets abroad (TOAA) rules are updated to remove references to domicile and the remittance basis. Income arising in offshore trusts will be attributed to UK resident settlors as if it were their own income on an arising basis or on other beneficiaries in receipt of distributions or benefits, subject to the new resident reliefs.
Implication:
The attribution of trust income and gains to UK residents will be more straightforward and less dependent on historic domicile status.
5. Capital Gains Tax: Trust Gains
The capital gains tax rules for offshore trusts are overhauled. The “protected settlement” regime is abolished, and gains arising in non-UK resident trusts will be attributed to UK resident settlors as they arise or to beneficiaries as they receivedistributions or benefits, unless the qualifying new resident relief applies.
Implication:
UK resident beneficiaries and settlors will face immediate UK tax on trust gains, with no remittance basis shelter.
6. Transitional provisions and temporary repatriation facility
A “temporary repatriation facility” (TRF) is introduced for individuals, allowing former remittance basis users to bring previously unremitted foreign income and gains (including those from offshore trusts) into the UK between 2025-26 and 2027-28 at a flat tax rate (12% for 2025-26 and 2026-27, 15% for 2027-28). Amounts brought in under this facility are exempt from further UK tax.
Implication:
This is a valuable, time-limited opportunity for individuals to remit their historical offshore income and gains at a reduced tax cost. As was the case up to 5 April 2025, the composition of capital, income and gains in an account outside the UK remains of importance.
7. Onward gifting and anti-avoidance
New anti-avoidance rules target “onward gifts” routed through non-residents or qualifying new residents. If a benefit or capital payment is received by a non-resident or qualifying new resident and then passed on to a UK resident, the UK resident is treated as having received the benefit or payment directly from the trust for tax purposes.
Implication:
These rules are designed to prevent circumvention of the new regime and will require careful consideration of trust distributions and onward gifts.
8. Inheritance tax: Domicile replaced by long-term residence
For inheritance tax (IHT), the concept of domicile is replaced by a “long-term UK resident” test. An individual is a long-term UK resident if they have been UK resident for at least 10 of the previous 20 tax years. The excluded property status for offshore trusts is now determined by the long-term residence status of the settlor, not their domicile. There are limited exclusions to these rules in Estate Tax Agreements that the UK has entered into with specific jurisdictions, which could provide a better result.
Implication:
Trusts settled by individuals who become long-term UK residents may lose their excluded property status, bringing offshore assets within the UK inheritance tax net.
9. Rebasing of foreign assets
Individuals who have previously used the remittance basis at least once between 2017/18 and 2024/25 may rebase foreign assets to their market value at 5 April 2017 for capital gains tax purposes, provided certain conditions are met. This applies to assets held on 5 April 2017 and disposed of on or after 6 April 2025.
Implication:
This offers some mitigation for capital gains tax on historic growth in foreign assets.
10. Other technical and consequential amendments
Numerous technical amendments are made to remove references to domicile and the remittance basis throughout the tax code, including in trust reporting and the application of anti-avoidance rules.
Summary table: Key changes for offshore trusts (2025 onwards)
| Area | Pre-2025 regime (remittance basis) | Post-2025 regime (residence-based) |
| Income tax on trust income | PFSI protected for non-doms; taxed on remittance | No PFSI; taxed on arising basis unless qualifying new resident relief applies |
| Capital Gains Tax on Trust Gains | Protected settlements regime; gains taxed on remittance | No protected settlements; gains attributed and taxed on arising basis unless qualifying new resident relief applies |
| Temporary repatriation facility | Not available | Available 2025-26 to 2027-28 for former remittance basis users; 12%/15% flat tax on designated capital |
| Onward gifting rules | Limited anti-avoidance | Strengthened anti-avoidance: onward gifts to UK residents from non-residents/new residents are taxed as if received directly from trust |
| Inheritance tax | Domicile-based excluded property | Long-term UK residence test replaces domicile for excluded property status |
| Rebasing of foreign assets | Only for certain remittance basis users | Extended to disposals on/after 6 April 2025 for eligible individuals |
Conclusion
The 2025 reforms represent a fundamental shift in the UK’s approach to taxing offshore trusts. The abolition of the remittance basis and the move to a residence-based regime means that most foreign income and gains arising in offshore trusts will be taxed on an arising basis for UK residents, with only limited relief for new arrivals. The temporary repatriation facility offers a unique, time-limited opportunity to bring historic foreign income and gains into the UK at a reduced tax rate. The inheritance tax regime is also overhauled, with long-term residence replacing domicile as the key test for excluded property.
Trustees, settlors, and beneficiaries of offshore trusts should urgently review their structures and consider the impact of these changes on their UK tax exposure. Early action and professional advice are essential to navigate the new regime and make the most of available reliefs and transitional provisions.
For further advice on how these changes may affect your offshore trust arrangements, please contact our specialist team.
