Technical issue with protected trusts

Following the changes to the taxation of non-UK domiciled individuals from 6 April 2017, certain offshore trusts enjoy protected status. If you have a settlor interested offshore trust (i.e. where you or certain family members can benefit), you need to take care to preserve this protected status – or face potentially significant tax costs.
 
Protected status brings an important and valuable advantage: the settlor of a protected trust will only be directly taxed on UK source income of the trust. Foreign income and capital gains will only be taxed when benefits are provided to beneficiaries.
 
Further details are on our 11 June announcement here.
 
However, one important item of income – known as ‘offshore income gains’ arising from profits on sales of non-reporting offshore funds – is not currently protected by the new rules.  This is thought to be a result of a drafting error rather than government policy. However, the government seems reluctant to address this issue. Accordingly the professional bodies have issued a call for evidence from offshore trustees and the advisers from professional firms. It is hoped that the issue will be revolved favourably before 2017/18 UK tax returns need to be filed (deadline 31 January 2019).
 
The link to the survey for trustees is here and if you wish to read further background, click here.
 
Advisers are encouraged to contact ICAEW Tax Faculty with any comments about the impact on their client base.
 
Please get in touch with your normal adviser for help and advice.

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