Tax bites on the way out
A non-resident trust is one whose trustees are not UK resident for tax purposes, and while it remains offshore its foreign income and gains typically fall outside the immediate UK charge on the beneficiary. When value flows out, HMRC's matching rules decide the character and amount of the charge. Under section 87 TCGA 1992, the trust's realised gains are pooled year by year into stockpiled gains, and a capital payment, which includes cash, asset transfers, non-commercial loans and the value of benefits, is matched against that pool and taxed as the beneficiary's capital gain. Where there are no stockpiled gains, the payment may instead be tested under the transfer of assets abroad benefits charge in section 731 ITA 2007, which matches benefits to the structure's relevant income and taxes them as income. A single distribution can engage more than one code, which is why characterising the payment correctly is the crux. The trustee-side picture is covered in our offshore trusts guide.
The supplementary charge on delayed distributions
Where a capital payment is matched to a gain of an earlier year and received more than one year after that gain accrued to the trustees, a supplementary charge applies to remove the cash-flow advantage of letting gains roll up offshore. The tax otherwise payable is increased by 10% for each year of delay, capped at six years, so the largest possible uplift is 60% of the capital gains tax due. The uplift applies to the tax, not the gain: if the underlying rate were 20%, the maximum charge could push the effective rate to 32%. One transitional point matters now: a capital payment designated under the Temporary Repatriation Facility for 2025/26 to 2027/28 suffers no further capital gains tax and so no supplementary charge, which is why the timing and sequencing of distributions is a core planning point.
Benefits in kind and the 2025 changes
A benefit does not have to be cash. Rent-free or below-market occupation of a trust-owned property, interest-free loans, use of trust assets and trust-paid expenses are all capable of being taxed, valued by reference to market rent forgone or the official rate of interest, and reassessed for each year the benefit continues. Since 6 April 2025 the charge turns on UK residence rather than domicile: a beneficiary in their first four years of UK residence, after at least ten consecutive years of non-residence, can claim 100% relief under the FIG regime on qualifying gains matched under section 87, section 89(2) and Schedule 4C. Reporting runs through Self Assessment, with matched gains on the SA108 and residence and FIG claims on the SA109. Because these codes overlap, Horizon confirms the treatment of any distribution before it is filed, for a fixed fee agreed upfront, and a free clarity call is the best first step.