The advantages derived from using UK trusts for UK inheritance tax planning are important to domestic taxpayers, given that property price inflation is resulting in even modest estates being exposed to UK inheritance tax. UK trusts may also be used by non-UK domiciled or resident persons. One of the most common forms of UK trust is the discretionary trust.

Mixed Resident Trusts

Under UK law, the rules of residence of trusts are such that if the settlor is non-UK resident and non-UK domiciled and provided that at least one of the trustees is non-UK resident, then such a trust will not be regarded as resident in the UK for tax purposes, even if there are UK trustees. This also assumes that no non-UK resident trustee of such a trust has a permanent establishment in the UK.

Such so-called mixed resident trusts can be used so that trust assets are vested by the settlor into the UK resident trustee on behalf of the full body of mixed resident trustees. Such an arrangement preserves the non-UK resident tax status of the trust while permitting income or gains arising from the assets vested in the UK trustee to be received safely onshore in a stable and secure environment but without UK tax cost.