I have a UK beneficiary of an Offshore Trust who is in receipt of capital payments. The UK beneficiary is charged to UK capital gains tax on the capital payments insofar as they are matched with stockpiled gains within the Offshore Trust and a supplemenraty charge paid by the beneficiary where applicable. That bit is relatively straightforward.
The Offshore Trust is resident in the United States and pays tax in the US on the capital gains. Is there any form of relief the beneficiary can claim against his UK tax liability in respect of the tax paid in the US on the gains?
If an individual sells a shareholding in the US and suffers tax in the US, under the double tax agreement, the individual is able to claim relief for the US tax suffered against his UK CGT liability. Are there similar provisions where an offshore trust structure is involved, otherwise the gains are effectively being taxed twice, once in the hands of the offshore Trustees and then again in the hands of the UK beneficiary.
Any comments would be appreciated.
Both examples 1 and 2 on HMRC help sheet HS261 show foreign tax credits against attributable gains.
Depending on the circumstances, either the foreign tax can be claimed as above, or used to reduce the gains (sometimes easier if that brings a gain just above the annual exemption to being just below it).
Adding perhaps unnecessarily, to David’s response, the general principle has always been that the Treaty allows for beneficial ownership through a trust to be taken into account, and the term “directly or by deduction” in the relief from double taxation article n° does not disqualify an “alienator” as being a beneficiary from this facility, which rermains squarely within the UK’s fiscal doctrine and legislation. The term “shall” is mandatory :
"… (4) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof)—
(a) United States tax payable under the laws of the United States and in accordance with this Convention, whether directly or by deduction, on .... chargeable gains from sources within the United States (excluding, in the case of a dividend, United States tax in respect of the profits out of which the dividend is paid) **_shall_** be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the United States tax is computed;"
I do not think that the fact that the trust or trustees are resident in the United States would change that position in relation to the Treaty term “alienator” as it fundamentally depends upon HMRC’s position as to the beneficial ownership of the assets disposed of, and their acceptance that they are required to give credit as a matter of general principle by the term “shall”.
The Treaty is, of course, a statutory instrument.