Trusts that are created overseas are subject to the laws of the country in which they are created and, though this is often based on UK law, most jurisdictions are more flexible on perpetuities and accumulations.
There could be advantages in creating overseas trusts (from a tax perspective) where the settlor or beneficiaries are non-UK domiciled or resident.
Not all countries recognise trusts. If an overseas trust is to be created, it may wise to do so in a country where the legal system is similar to that in the UK, e.g. the Channel Islands, Gibraltar, the Cayman Islands, etc.
Creating a trust with foreign resident trustees will usually be treated as a transfer of value for IHT purposes. Whether it is classed as a chargeable transfer will depend upon various conditions, such as:
Whether any general IHT exemptions can apply
The property may be excluded pr...
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...miciled).
After 6 April 2017, an individual will be deemed domiciled for IHT purposes if they have been resident in the UK for at least 15 years out of the previous 20, ending in the tax year in question (it was previously 17 out of 20).
The new rules also state that if an individual changed their domicile from UK to a domicile of their choice elsewhere, they will be deemed domiciled if they have been resident in the UK in at least one out of the two previous tax years (the ‘residence condition’).
There will therefore be no change for long-term residents who created trusts while they were non-UK domiciled and subsequently become deemed domiciled, but for a UK domicile who created trusts after becoming domiciled elsewhere, the assets settled into those trusts will not be excluded property if the settlor meets the ‘residence condition’.
