Offshore income gains (OIGs) meaning

FTT holds that OIGs and AIPs arising in offshore protected trusts are not protected foreign source income (Louwman v Revenue and Customs Commissioners [2025] UKFTT 295 (TC)) What are the practical implications of this case? This outcome is adverse for former non-domiciled and deemed domiciled individuals who held investments via offshore trusts, including mutual funds that generate OIGs on sale and bond investments that produce AIPs when disposed of through such structures. In effect, the decision means that OIGs and AIPs arising within offshore protected trusts (under the rules in place up to 5 April 2025) are chargeable to tax on the arising basis, rather than being sheltered until distributions are made and matched to the trusts’ capital gains or benefits. From a tax policy perspective, these OIGs and AIPs ought to have been treated as ‘protected foreign source income’—not taxed as they arise, but only when paid out of an offshore protected trust and matched to capital gains or benefits arising within the trusts...

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FORTHCOMING CHANGES: At Budget 2025 on 26 November 2025, the government outlined minor corrective changes to the residence-based tax system introduced by the Finance Act 2025. Key measures cover: eligibility for new arrivals under the foreign income and gains (FIG) regime, who must be at least 10 years old at the start of the tax year restricting FIG relief claims so they can be set only against the specific foreign income, foreign employment income, or foreign gains to which they correspond aligning the qualifying asset holding company (QAHC) rules so that carried-interest-style returns tied to services provided to a QAHC qualify for relief under the FIG regime a correction to the capital gains tax (CGT) residence test for personal representatives, ensuring they are not UK resident where the deceased was UK non-resident but was a long-term UK resident for inheritance tax purposes a requirement for an individual to file a tax return where they are not entitled to the CGT annual exempt...

STOP PRESS: Abolition of non-dom regime and introduction of residence-based IHT regime Finance Act 2025 (FA 2025), which received Royal Assent on 20 March 2025, delivers the repeal of the remittance basis and introduces a residence-based system with effect from 6 April 2025. FA 2025 also replaces domicile as the principal criterion for determining exposure to inheritance tax. Updates to the rules for determining excluded property status Abolition of the protected settlements status for offshore trusts Changes to overseas workday relief For details on these measures, see: Practice Notes: The abolition of the remittance basis of taxation from 2025–26 and A new residence-based regime for IHT from 2025–26. A non-reporting offshore fund is any offshore fund that does not have reporting fund status for a particular period of account. For what constitutes an offshore fund, see Practice Note: Tax and offshore funds—what is an offshore fund?. For information on reporting funds, see Practice Notes: Tax and offshore funds—the reporting fund...

Capital payments are generally taxed by setting them against available relevant income (ARI), offshore income gains (OIGs) and then capital gains, in that sequence respectively. Accordingly, where a trust has no ARI, distributions are matched first with OIG figures and ultimately with amounts then referable to section 1(3) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) (formerly s 2(2)), and those arising under TCGA 1992, s 87 or Schedule 4C. For commentary on OIGs, see the Practice Note: Offshore trusts—offshore income gains (OIGs). For guidance on matching capital payments, see Practice Notes: Offshore trusts—matching capital payments—section 87 TCGA 1992 and Offshore trusts—matching capital payments where the trustee borrowing rules apply—Sch 4C TCGA 1992. Where there has been a transfer between settlements, the OIG figures and the s 1(3) amounts within each settlement are correspondingly adjusted accordingly. Accordingly, the tax treatment of any payment made from either settlement in the transfer year, or in later years, is likewise likely to be altered. What is a ‘transfer’? ...