A UK resident beneficiary of a non resident trust is not taxed on the trust’s gains as they arise. Instead, when the trustees make a capital payment or provide a benefit, such as an interest free loan or rent free use of a property, section 87 of the Taxation of Chargeable Gains Act 1992 matches it with the trust’s accumulated gains and treats a matching gain as the beneficiary’s, with an extra charge of up to 60% of the tax where the gains are old. Benefits can also be taxed as income under the transfer of assets abroad rules where the trust or its companies have untaxed income.

When is a trust non resident for these rules?

Section 69 treats the trustees as a single person who is UK resident if all the trustees are UK resident, or if the trustees are a mix of UK and non UK residents and a settlor was UK resident when the settlement was made or, for a will trust, immediately before death. For settlements made before 6 April 2025, section 69(2CA) also counts a settlor who was UK domiciled at that time. If neither condition is met, the trust is non resident.

Section 87(1) applies the beneficiary charge to a settlement for any tax year in which there is no time when the trustees are UK resident. HMRC’s helpsheet HS301 notes that charges can also arise on benefits from dual resident trusts and from UK trusts that were previously non resident or have received assets from one. The beneficiary’s own residence is decided under the statutory residence test.

What counts as a capital payment?

Section 97(1) defines a capital payment as any payment that is not chargeable to Income Tax on the recipient, or on another person under the settlements or transfer of assets abroad rules. Arm’s length transactions are excluded. Section 97(2) extends it to the transfer of an asset, the conferring of any other benefit and any occasion on which a beneficiary becomes absolutely entitled to trust property. Under section 97(4) a loan or other benefit is valued as the value of the benefit conferred, and section 97(5) catches payments received indirectly, used to pay the beneficiary’s debts, or paid to a third person at the beneficiary’s direction.

HS301 gives examples of benefits: interest free loans, loans below the official rate of interest, rent free occupation of trust property and use of trust property at less than a market rent. HMRC’s Capital Gains Manual at CG38575 adds that anyone who receives a payment from the trustees counts as a beneficiary, whether or not they are named in the deed, and that there are look through rules for payments made through companies the trustees control.

How are payments matched with the trust’s gains?

Each year the trustees work out the section 1(3) amount: the gains they would have been taxed on had they been UK resident, less any gains already attributed to a UK resident settlor under section 86 (section 87(4)). Gains on UK property and other assets on which non resident trustees are taxed directly are left out by section 87(5A); see non resident CGT on UK property.

Section 87A then matches the gains for a year with capital payments made that year. If gains are left over they are matched with unmatched payments from earlier years, working backwards from the most recent; if payments are left over they are matched with unmatched gains of earlier years in the same way. A payment made before the trust has any gains is carried forward and taxed in the later year when gains arise. Under section 87(3) the gain treated as accruing to the beneficiary equals the matched part of the payment.

CG38575 explains that payments to non resident beneficiaries are matched in the same way. No UK tax arises on them, but they still use up the pool of gains, which can shelter later payments to UK residents.

How much tax does a UK beneficiary pay?

The matched gain is taxed at the beneficiary’s own rates, which for 2026 to 2027 are 18% within the basic rate band and 24% above it. HS301 says the attributed gains are treated as the first slice of the beneficiary’s gains, so the annual exempt amount of £3,000 is set against them, but the beneficiary cannot set personal losses against these gains.

Section 91 adds a supplementary charge where the payment is made more than one year after the end of the tax year in which the matched gains arose. It is calculated as interest at 10% a year on the tax, running from 1 December after the end of the year the gains arose, for no more than six years, and the total tax cannot exceed the payment. HS301’s table for 2025 to 2026 shows the tax increased by 20% for gains of 2023 to 2024, rising to 60% for gains made before 6 April 2020.

When is a benefit taxed as income instead?

Under sections 731 and 732 of the Income Tax Act 2007, a UK resident individual who did not make the transfer into the structure is taxed on a benefit provided out of assets that are available because of that transfer, to the extent it can be matched with income that has arisen to the trust or its underlying companies and has not yet been used. HMRC’s helpsheet HS262 sets out the steps: total untaxed benefits are compared with available relevant income, and the lower figure is taxed as income. Only the excess of a benefit over the available income is left to be matched with gains under section 87, because section 97(1) excludes amounts taxed as income from being capital payments.

Sections 736 to 742 exempt cases where the transactions were not made to avoid tax, or were genuine commercial transactions only incidentally designed to avoid tax. HS262 requires anyone relying on this to give details in the return.

Straightforward income distributions are different again. A beneficiary entitled to the trust income reports it by source, while discretionary income payments are reported as foreign income. Under Extra Statutory Concession B18, explained at TSEM10440, a UK resident beneficiary can look through to the trust’s sources and claim credit for UK tax paid by the trustees, provided the trustees have filed all required returns and paid all tax due since the trust began (TSEM10445). Claims must be made within five years and ten months of the end of the tax year of the payment.

What changed from 6 April 2025?

HS301 explains that the remittance basis was abolished from 6 April 2025 and UK residents are now taxed on worldwide income and gains as they arise. A qualifying new resident, meaning someone in one of their first four years of UK residence after at least ten consecutive tax years of non residence, can claim relief under the foreign income and gains regime. HMRC’s Residence and FIG Regime Manual at RFIG45500 explains that the claim is made for identified capital payments, and the payment is then ignored for sections 87 and 87A in that year and later years, so it does not reduce the pool of unmatched gains. HS266 warns that making any FIG claim costs the individual their personal allowance and annual exempt amount for that year.

Former remittance basis users may instead be able to designate gains matched to pre 2025 trust gains under the temporary repatriation facility; HS301 gives a 12% charge for 2025 to 2026.

How might this look in practice?

Illustration only. Offshore trustees made gains of £50,000 in 2022 to 2023 and none since. In 2026 to 2027 they pay £30,000 to Sam, a UK resident higher rate taxpayer who is not the settlor and has no other gains or FIG claim. The £30,000 is matched with the 2022 to 2023 gains, so Sam has a section 87 gain of £30,000. After the £3,000 annual exempt amount, tax at 24% on £27,000 is £6,480. The supplementary charge runs from 1 December 2023 to 30 November 2027, four years at 10%, adding £2,592, so Sam pays £9,072. The trust is left with £20,000 of unmatched gains to carry against future payments.

What mistakes come up most often?

  • Treating an interest free loan or free use of a trust owned home as tax free because no cash changed hands.
  • Not asking the trustees for their matching records, which the beneficiary needs to complete the return.
  • Setting personal capital losses against section 87 gains.
  • Ignoring the transfer of assets abroad rules where the trust holds income producing companies.
  • Making a FIG claim without weighing the loss of the personal allowance and annual exempt amount.
  • Overlooking the separate settlor charges where the settlor can benefit; see settlor interested trusts.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.