...

ADVANCED STRUCTURING – NON-UK TRUSTS, UK NON-RESIDENT TRUSTS AND UK LIMITED COMPANIES

Why Choose the UK Over the Caribbean or the Middle East for Offshore Structures?

 

Four Reasons:
  1. Applies a narrow definition of beneficiaries by using the Person of Significant Control (PSC) framework instead of the FATF beneficial owner standard. For UK companies owned by trusts, the PSC is the trustee rather than the settlor or beneficiaries—unless they have significant control, which is easy to circumvent.
  2. Non-UK trusts and UK non-resident trusts are not required to register with the Trust Registration Service (TRS) or for tax with HMRC, except in rare circumstances.
  3. If the underlying company holds its investments through an additional layer, such as PPLI, the UK company can legally file as dormant, eliminating the need for accounts or audits.
  4. If a UK non-resident trust qualifies as a Custodial Institution in a CRS non-participating jurisdiction and the UK underlying company is an Investment Entity, there is legitimately no CRS reporting obligation

  1. Trusts shall be governed by the law selected by the settlor.
  2. The chosen jurisdiction must be expressly stated in the trust instrument.
  3. A UK trust is one where the governing or proper law selected is that of the UK.
  4. For instance, a trust involving UK settlors, beneficiaries, or trustees will only be considered a UK trust if the settlor designates UK law as the governing law.
  5. In the absence of a specified governing law, the proper law will be determined based on the trust’s nexus.

This distinction is crucial for registration with TRS/HMRC.
A “UK non-resident” trust refers to a type of UK trust where:
  1. None of the trustees are tax residents in the UK, or
  2. At least one of the trustees is a UK resident, and the settlor of the trust was one of the following when the trust was established or when funds were added:
    • Not resident or normally resident in the UK, or
    • Not domiciled or deemed domiciled in the UK (this will be obsolete after April 2025).
  3. Note that a UK trust can still be classified as “UK non-resident” even if some of the trustees are UK residents, as long as all the beneficiaries are non-resident in the UK.

  1. A “non-UK trust” is a trust where the settlor has chosen a governing law outside the UK.
  2. The tax residency of the trustees, settlor, or beneficiaries is irrelevant.
  3. The jurisdiction must recognize trusts.
  4. Perhaps one of the 14 signatories to the Hague Convention on Trusts .

1. England and Wales are a prestigious onshore jurisdiction.

2. Top-tier banks are increasingly reluctant to maintain accounts for offshore entities.

3. Banks are closing accounts in tax havens, including previously common jurisdictions like BVI.

4. Unlike typical tax havens, the UK requires a Tax Identification Number.

5. The UK is recognized for its just and fair approach to trust interpretation and enforcement.

6. No wealth tax applies in the UK.

1. The narrower definition of “control” compared to the broader FATF-defined beneficial owner provides greater confidentiality and asset protection.

2. The UK follows FATF’s definition of a Beneficial Owner for trusts but, inexplicably, applies its own narrower definition of a Person with Significant Control (PSC) for companies.

3. For trusts registered on the Trust Registration Service (TRS), the FATF-defined beneficial owners include the trustee, settlor, beneficiaries, and protector.

4. For companies owned by trusts under UK PSC rules:

a. The PSC is the trustee.

b. The settlor is a PSC only if the trust is revocable, the settlor can replace the trustee, or the settlor can instruct the trustee.

c. The protector is a PSC if they have the power to replace the trustee.

d. A beneficiary is a PSC only if they have a mandatory right to more than 25% of the trust’s income.

The TRS (Trust Registration Service) was introduced by the UK government in 2017 to prevent the misuse of trusts for illegal activities.
The TRS is broader than the PSC (Person of Significant Control) register and includes the following:
  • Settlors, trustees, beneficiaries, protectors, and
  • Assets held by the trust, such as money, buildings, land, company shares, partnerships, yachts, cars, jewelry, art, and more.
A UK non-resident or non-UK trust must register with the TRS under the following circumstances:
  1. If the trust acquires, either directly or indirectly, UK land and buildings, unless it is a co-ownership express trust.
  2. If the trust is liable for taxes related to UK assets or UK-sourced income, including:
    • Income tax, capital gains tax, inheritance tax, stamp duty reserve tax, or stamp duty land tax.
  3. If at least one trustee is a UK resident, and the trust enters a relationship with any of the 15 UK relevant persons, such as:
    • Financial Institutions, Credit institutions, Auditors, Insolvency Practitioners, External Accountants, Tax Advisers, Legal Professionals, Trust or Company Service Providers, Estate Agents, High-Value Dealers, Casinos, Art Market Participants, Crypto-asset Exchange Providers, Custodian Wallet Providers. This system helps maintain transparency and accountability in trust ownership, ensuring compliance with the UK’s anti-money laundering and terrorist financing laws.

Key Points on UK Trust Formation and Confidentiality:
 
  • Confidentiality is a primary consideration in UK trust formation.
  • There is no requirement for a UK person to be involved in the creation or maintenance of a UK trust.
  • Non-UK residents are permitted to serve as trustees of UK trusts.
  • Trustees are not required to be licensed.
  • The UK Trust Deed does not need to be drafted by UK-based individuals such as lawyers, notaries, or corporate service providers.
  • There is no need for a UK representative agent.
  • The UK Deed of Trust does not need to be witnessed in the UK.
A dormant filing for UK companies can be submitted when the company has had no significant accounting transactions during the financial year. This means the company has not been actively trading, with no income or expenses except for those permitted for a dormant company.
 

Key Points for Dormant Filing:

 

1. No Significant Transactions
The company must not have had any significant accounting transactions during the financial year. However, the following transactions are permitted for a dormant company:

  • Filing fees paid to Companies House
  • Penalties for late filing of accounts
  • Payments for shares issued by the company
2. Dormant Company Accounts (Simplified Accounts)
If eligible, the company can file dormant company accounts with Companies House. These simplified accounts include:
  • A balance sheet showing the company’s financial position at the end of the financial year
  • Any relevant notes to the accounts
  • A statement confirming that the company remained dormant throughout the financial year

3. Eligibility for Audit Exemption
Dormant companies meeting the necessary criteria may also qualify for an audit exemption, reducing administrative burdens.

Key Characteristics of a Dormant Company:
 
• Not Trading:

A dormant company does not engage in any business activities, such as buying or selling goods or services, or generating income from investments.

• Legally Registered:

Despite being inactive, the company remains legally registered with Companies House.

• Statutory Compliance:

Dormant companies must still meet statutory filing obligations, including submitting annual accounts and a confirmation statement to Companies House.

• Dormancy for Tax Purposes:

HMRC classifies a company as dormant for Corporation Tax purposes if it is not trading and has no other sources of income, such as investments.

Trusts: Custodial Institutions

Under agreements for the Automatic Exchange of Information, trusts are recognized as entities. A trust may qualify as either a Financial Institution or a Non-Financial Entity. If a trust meets the criteria for a Financial Institution, it is most commonly classified as an Investment Entity. However, it may also meet the conditions for being a Custodial Institution.

For instance, if a trust holds shares within a Custodial Account, it would be considered a Custodial Institution responsible for reporting on that account.

If a UK company qualifies as a Professionally Managed Investment Entity (PMIE) and is owned by a UK non-resident Custodial Institution trust, the responsibility for reporting does not fall on the PMIE. Likewise, the UK non-resident Custodial Institution trust is also not responsible for reporting. Instead, the obligation lies with the Custodial Institution holding the equity interest

Advantages of UK Non-Resident Trusts Owning UK Limited Companies.

• The trust is not required to register on the Trust Registration Service (TRS).
• The trustee, in most cases, is the sole Person with Significant Control (PSC) of the company.
• Simplified dormant filing if investments are held within an underlying structure.
• No obligation to register the trust with HMRC unless it is liable for tax.

Situations of inefficiency include:

• Trustee Becoming UK Deemed Domiciled: If a trustee of a non-resident trust acquires deemed domicile status in the UK, the trust’s tax benefits are significantly reduced.
• Beneficiaries Becoming UK Resident: If beneficiaries of a non-resident trust become UK residents, they may become liable for UK taxes on the trust’s income and gains.
• Trust Holding UK Assets: If a non-resident trust owns UK assets—such as property or shares in a UK limited company—those assets may be subject to UK taxation.

For CRS Purposes: Who Is Considered the Settlor of the New Trust?

Assume that, for CRS purposes, an individual settlor establishes an SPV Custodial Institution trust. The SPV Custodial Institution then decants or resettles assets into a new reporting trust with a new corporate trustee.

Settlor for Income Tax Purposes
• The original economic settlor who provided the funds to the SPV Custodial Institution trust is treated as the settlor for income tax purposes.

Settlor for CRS Purposes
• CRS relates to the automatic exchange of information.
• The settlor of the new trust is the entity that settled the assets.
• For AEOI purposes, if that entity is a reportable person, the new trust will report on the Controlling Persons of the entity.

Talk to an expert
BUY Our Book on Amazon!

Table of Contents: ADVANCED STRUCTURING – NON-UK TRUSTS, UK NON-RESIDENT TRUSTS AND UK LIMITED COMPANIES

Related Sites
Contact
Derren works with International Entrepreneurs, Expats and Investors who are exposed to multiple jurisdictions. Tax optimization. Asset Protection. Compliance Obligations. Strategies include second citizenships, second residencies, trusts, foundations, insurance wrappers and other offshore structures.

Related Posts

Please email us on [email protected]