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Floating offshore

07 January 2009
Issue: 4188 / Categories: Forum & Feedback , Residence & domicile
A non-domiciled and non-resident individual who created an offshore trust has recently died. Will distributions to the UK resident and domiciled beneficiaries be treated as capital or income and will the defence in ITA 2007, s 739 be applicable? And should the trust now become UK resident itself?

An offshore discretionary trust was created in 1982 by an individual who was non-domiciled and had never been UK resident. He has since died remaining non-domiciled and non resident until his death. The intended beneficiaries are all UK domiciled resident and ordinarily resident. There is a foreign company controlled by the trust that owned some UK property which was rented out and subsequently sold. The last properties were sold in 2007-08. The company and the trust now only have offshore cash deposits.

The trustees have agreed to make substantial capital distributions to the UK beneficiaries and then to make regular income distributions to them. I would like readers’ thoughts on the following points.

First I understand that the capital distributions will be taxed as income unless a defence under what was TA 1988 s 741 (now ITA 2007 s 739) is successful when it...

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