Why do trustees need to know about UK immigration and residence?

As “domicile” takes its curtain call as a connecting factor for UK tax purposes, “residence” makes its way to the centre stage in the non-dom world.  This post shines a spotlight on some of the key points on UK immigration and tax residence that are relevant to trustees under the new regime. 

UK IMMIGRATION AND TAX RESIDENCE: AN OVERVIEW

Day or (mid)night?

“Residence” for UK tax purposes is different to “residence” for UK immigration purposes (or rather, “absences”).

Since 6 April 2013, the Statutory Residence Test ("SRT") applies to determine whether an individual is resident in the UK for tax purposes.  One of the key principles of the SRT is the number of midnights spent in the UK.  In contrast, under UK immigration law, an individual is not considered absent from the UK unless the absence lasts for a whole day.  In other words, a part-day in the UK counts as residence for immigration purposes.

For further details, please see our Lexology article and SRT Flowchart.

Visitors

Although this is less relevant to trustees, it is worth mentioning that, whilst the time spent under a Visitor visa or a short-term visa does not count towards continuous residence for UK immigration purposes in most cases, a visitor (with or without a Visitor visa) or short-term visa holder could become UK tax resident by virtue of the SRT.  As an example, an individual could become UK tax resident by spending as little as 16 days (i.e. midnights) in the UK if they have four or five “ties” under the “sufficient ties test” of the SRT!

Students

There is also a common misconception that international students in the UK are not subject to the SRT and/or that such students are not UK tax residents.  Whilst most students may not have sufficient income or gains to have UK income tax or capital gains tax liabilities, they are, in fact, likely to be UK tax residents if they study full-time in the UK and are subject to UK tax on their worldwide income and gains.  Two important points are highlighted below:

• If a beneficiary of a trust is studying full-time in the UK, then the trustees should be mindful of the rules in relation to making trust distributions to UK-resident beneficiaries (e.g. maintaining income and gains pools and “matching”) and clarify the UK tax residence status of the beneficiary before making any distributions.
• A beneficiary studying full-time in the UK might have started their UK inheritance tax ("IHT") “Long-Term Resident” clock earlier than expected and could also be subject to a different set of rules if they are aged 20 and under.  As and when they become a “Long-Term Resident” or are within the UK IHT “tail”, their worldwide assets (including distributions received from a trust) will become subject to UK IHT.  

Permanent residents

Conversely, an individual with Indefinite Leave to Remain, Settled Status or British citizenship is not necessarily UK tax resident.  The SRT does not take into account the individual's UK immigration status, and it is not assessed as a “tie” under the “sufficient ties test”. 

KEY CHANGES FROM 6 APRIL 2025 

Settlors

We highlighted in our briefing that trusts established by non-domiciled individuals will also lose many of the UK tax protections with effect from 6 April 2025.  In particular:

• Income and gains arising in trusts will be attributed to and taxable on the UK-resident settlor(s); and
• For so long as the settlor is a “Long-Term Resident” for UK IHT purposes or is within the IHT “tail”, the trust fund will also be exposed to IHT.

Therefore, it is crucial for trustees to know the UK tax residence status of the settlor in order to be UK tax-compliant.

Temporary Repatriation Facility  

One of the headline changes to the non-dom regime is the introduction of the “Temporary Repatriation Facility” ("TRF") which is available for three UK tax years (2025/26, 2026/27 and 2027/28).  The TRF allows individuals to remit pre-6 April 2025 foreign income and gains at a flat rate of either 12% or 15% (the “TRF Charge”).  It is important to note that the TRF also applies to certain trust distributions.  In order to qualify for the TRF, two of the key criteria are as follows:

• The TRF is only available to those who have been subject to the remittance basis in any UK tax year up to and including 2024/25.
• The individual must be UK tax resident to designate funds under the TRF.

For example, trust distributions made to a minor beneficiary studying in the UK (who is UK tax resident and has been subject to the remittance basis automatically) could potentially qualify for the TRF, which could open up planning opportunities for the trust. 

The 4-Year FIG Regime

“FIG” stands for “foreign income and gains”.  The 4-Year FIG Regime essentially replaces the remittance basis, but it is only available to those who have been non-UK tax resident for at least ten consecutive years before becoming UK tax resident.  Broadly speaking, those who qualify for and claim the Regime will not have to pay UK tax on most types of FIG during the first four UK tax years of residence. 

Furthermore, most trust distributions from non-UK trusts made to individuals claiming the 4-Year FIG Regime should not be subject to UK tax.  If a beneficiary is planning to spend more time in the UK or move to the UK, then the availability of the Regime is something that the trustees should consider.

Planning

As mentioned earlier, UK tax residence and immigration residence are calculated under different rules and, as such, individuals who are interested in moving to the UK should consider both sets of rules in parallel.  By way of example, the following pre-arrival planning may be possible for new arrivers:

Whilst the immigration white paper proposes to extend the time required to be eligible for Indefinite Leave to Remain from five years to ten years for certain visa routes, there is currently no draft Statement of Changes to implement such a proposal. 

HOW CAN WE HELP?

Burges Salmon's specialists have substantial experience in immigration, tax, trusts, and estate planning for international clients.  If you wish to discuss any of the matters raised in this article, please do get in touch with Suzanna Harvey, Myra Leung or your usual contact within the team.