If you’re a British citizen with international assets, offshore trusts might seem like a smart way to protect your wealth. Yet, these structures are now under the microscope, especially as HMRC tightens anti-avoidance rules from April 2025. Getting it wrong can mean unexpected tax bills, penalties, or even criminal investigation. Here’s what you need to know to keep your trust—and your finances—safe.

Why Offshore Trusts Are Under the Spotlight

Offshore trusts have long been used to manage family wealth, shield assets from UK inheritance tax, and provide flexibility for global families. But HMRC is increasingly challenging these arrangements, looking for signs of tax avoidance or non-compliance. The rules are technical, and even small mistakes can have big consequences.

Overview of Anti-Avoidance Legislation

Three main sets of rules apply:

• Transfer of Assets Abroad (ToAA): Designed to prevent UK residents from avoiding tax by transferring assets to a person abroad. If you have the power to enjoy income or receive capital from the trust, you could be taxed on the income as if it were yours.
  
  

• Settlements Legislation: Focuses on trusts where the settlor or their family can benefit. Income and gains may be attributed to the settlor, even if they don’t receive them directly.
  
  

• Inheritance Tax (IHT) Rules: From April 2025, the focus shifts from domicile to residence. If you’re a long-term UK resident, your worldwide assets—including those in offshore trusts—could be exposed to UK IHT.

HMRC’s Approach: What Triggers an Investigation?

HMRC looks for:

• Trusts where the settlor or close family can benefit

• Unclear documentation or missing records

• Transfers of assets just before rule changes

• Complex structures with offshore companies or layered trusts

If HMRC suspects avoidance, they may issue information requests, freeze assets, or open a formal enquiry.

Case Study: Jersey Trust Holding £10m in Assets

Imagine Freya, who set up a Jersey trust in 2017 with £10 million in overseas property and investments. She and her children are potential beneficiaries. In 2025, HMRC reviews the trust and finds that Freya has received benefits from the trust, and her children have used trust assets for education and travel.

HMRC applies the ToAA and settlements rules, attributing income and gains to Freya. They also challenge the excluded property status for IHT, arguing that Freya is now a long-term UK resident. The trust faces a tax bill, and Freya must provide detailed records to defend her position.

Key Technical Issues

• Settlor Interested Trusts: If you or your family can benefit, income and gains may be taxed on you.

• Attribution of Income and Gains: HMRC can attribute trust income to the settlor, even if not received directly.

• Tainting and Excluded Property Rules: Adding new assets or changing beneficiaries can “taint” the trust, losing excluded property status.

• Close Family Member Rule Post-2025: Benefits received by close family members may trigger tax charges, even if you don’t benefit directly.

Defending Your Position

• Documentation and Evidence: Keep clear records of trust deeds, asset transfers, beneficiary lists, and correspondence.

• Responding to HMRC Enquiries: Reply promptly, provide requested documents, and explain the trust’s purpose and history.

• Appeal Rights and Process: If HMRC issues an assessment, you can appeal. Write to HMRC, provide evidence, and prepare for a tribunal if needed.

Practical Solutions

• Trust Restructuring Before April 2025: Review your trust now. Consider adding assets, changing beneficiaries, or restructuring to preserve excluded property status.

• Segregating UK and Non-UK Assets: Keep UK assets separate from overseas assets. This helps clarify which assets are exposed to UK tax.

• Timing and Record-Keeping: Make changes before rule changes take effect. Document every transfer, decision, and meeting.

Final Checklist and Common Pitfalls

• Review your trust deed and beneficiary list.

• Audit asset transfers and ensure clear records.

• Segregate UK and non-UK assets.

• Respond promptly to HMRC enquiries.

• Avoid last-minute changes that could trigger tainting.

• Prepare for the new rules in April 2025.

Feeling Overwhelmed? You’re Not Alone

Offshore trust planning is technical and often contentious. But with careful action, clear records, and timely decisions, you can protect your wealth and avoid legal headaches. If you’re unsure, keep asking questions and make sure your trust is fit for the new regime.

Disclaimer: This article provides general information for educational purposes only. It is not legal, financial, or tax advice. Outcomes can vary based on your personal circumstances.