You are UK resident and a US family trust is paying out. The UK taxes what reaches you under its own rules — income or capital, matched gains, the supplementary charge, and the 2025 residence reforms.
If you live in the UK and money reaches you from a trust set up in the United States, the UK taxes what arrives under UK rules, however the trust is described in American documents. A payment the trustees treat as income is normally taxed as your income with no tax credit attached; a payment they treat as capital can be matched to the trust's accumulated gains and taxed at capital gains rates, with a supplementary charge for every year the trustees delayed paying it out. The two systems ask different opening questions, and the US paperwork does not answer the UK one.
Rules, rates and allowances as at 6 October 2026. The UK Budget is on 28 October 2026 and could change any of the UK figures below.
This is the US-trust-to-UK-beneficiary direction: an American family trust, US trustees, a beneficiary resident in the UK. The opposite direction — a US person reporting a non-US trust — is in foreign trusts and Form 3520; inheritances flowing to a US person are in inheriting money overseas; and the systems are compared in the abstract in how the US, UK and UAE tax trusts differently.
The US asks: grantor or non-grantor? Where the person who created the trust keeps certain powers it is a grantor trust, and in the IRS's words "the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor" (IRC sections 671 and following) — a revocable living trust's income sits on your parents' Form 1040, not yours. A non-grantor trust is a taxpayer in its own right: it files Form 1041 and reports distributed income to beneficiaries on Schedule K-1.
The UK asks two different questions: whether the settlor has retained an interest, and what has actually reached a UK resident beneficiary. If the settlor is UK resident and the settlor or spouse can benefit, trust income is taxed as the settlor's own and under section 86 TCGA 1992 the trustees' gains are "treated as accruing to the settlor in the tax year the gains accrue to the trustees"; from 6 April 2025 that test is residence-based, not domicile-based. In the typical American family trust the settlor is a US parent or grandparent who has never been UK resident, so these rules fall away — which is why attention moves to the beneficiary. And no UK concept maps onto "grantor trust": a trust the IRS disregards entirely is, for UK purposes, still a settlement with trustees and property, and a benefit those trustees confer on you is still a benefit.
HMRC's Trusts, Settlements and Estates Manual is direct about a discretionary income payment from a non-resident trust: the beneficiary "shows it on the Foreign pages of the SA return", "the amount of income returned is the amount received with no tax credit", and the beneficiary "must not include any UK or foreign tax, relating to the trust income, in the SA computation".
That is where transatlantic families lose money: US tax the trust already paid does not become a UK credit this way. One concession — ESC B18 — lets a beneficiary look through to the trust's underlying income sources and claim reliefs as though the income had been received directly, but it depends on the trustees having met their own UK obligations and must be claimed "within five years and ten months of the end of the tax year in which the payment was made". Where a US trust holds only US assets and has paid no UK tax, there is usually little for it to reach.
Section 87 TCGA 1992 applies "if a beneficiary of a non-resident settlement receives a capital payment from the trustees of that settlement", and treats part of the trustees' gains as accruing to that beneficiary. Those gains build up as section 1(3) amounts — section 2(2) amounts in older guidance — and capital payments are matched against them last-in, first-out under section 87A, excluding gains already attributed to the settlor under section 86.
Section 91 then adds the supplementary charge. Where a capital payment is matched to a gain of an earlier year and received more than a year later, the tax "increases by 10% per annum up to a maximum of six years". The clock runs from 1 December following the tax year the gain was realised to 30 November following the year of the payment, and the annual exempt amount is set against the gain first. HMRC's purpose is blunt: to "encourage trustees not to defer making capital payments after they have made a disposal". A trust that accumulated gains for a decade and then paid out is the pattern it was built for.
"Capital payment" is wider than it sounds. HMRC describes the section 97(1) definition as very wide, covering any payment not chargeable to income tax in the beneficiary's hands; section 97(4) values a non-cash payment at the benefit conferred — market value for transferred property, otherwise what a similar benefit would cost from an unconnected third party. Rent-free occupation of a trust-owned apartment, an interest-free loan, or fees settled on your behalf can all qualify.
Illustrative only. Assumed facts, not a client case.
A UK resident higher-rate taxpayer receives a £200,000 capital distribution from a US family trust in 2026-27. The trustees' most recent unmatched section 1(3) amount arose in 2021-22 and exceeds £200,000, so the whole payment matches to it.
Had the trustees distributed in the year after the gain arose, no supplementary charge would have applied: timing, not structure, produced the extra £23,640.
Transfer of assets abroad. This code (ITA 2007 sections 714 to 751) is, in HMRC's words, "anti-avoidance legislation aimed at preventing individuals who are UK resident from avoiding a liability to income tax by means of a transfer of assets which results in income becoming payable to a person abroad". Its income charge hits the person who made the transfer. The benefits charge at section 731 hits someone else entirely: it "can also apply where an individual who is UK resident receives a benefit provided out of assets available for the purpose as a result of a transfer of assets".
That charge taxes neither the trust's income nor the benefit as such. HMRC calls it "an amount determined by comparison of both elements over time": benefits received are compared with the trust's relevant income, meaning income arising to a person abroad that "can be used directly or indirectly for providing a benefit for the individual". It need not have been used — availability is enough — and relevant income is fixed year by year and carried forward. From 6 April 2025 the charge "will once again only apply to non-transferors": here, the beneficiary, not the American settlor.
Attribution of gains. This is the section 86 and section 87 pair already described: gains to the settlor where the settlor is in scope, otherwise matched to capital payments received by UK resident beneficiaries. These regimes are not alternatives — one distribution can be tested against both, and much of the professional work is establishing which pool it lands in.
HMRC puts the shift from domicile to residence plainly: "From 6 April 2025, the concept of domicile is no longer relevant in determining how individuals are taxed in the UK, instead a residence-based test now applies." The protections that previously sheltered foreign income and gains inside offshore settlor-interested structures were withdrawn.
For a newly arrived beneficiary what matters is the four-year foreign income and gains (FIG) regime, which replaced the remittance basis. It is available to a qualifying new resident — broadly, someone in one of their first four UK tax years after at least 10 consecutive tax years of non-UK residence — and must be claimed each year. HMRC's manual confirms it reaches trust amounts: deemed income under the transfer of assets abroad provisions can be qualifying foreign income, and relief is available where a beneficiary receives "a capital payment that would ordinarily result in the person being treated as accruing a matched chargeable gain under section 87 TCGA 1992". The window is short and does not reopen: see the FIG regime for US citizens in the UK.
Inheritance tax moved too. Foreign assets come into scope once an individual is a long-term UK resident — resident for at least 10 of the previous 20 tax years. For trusts, excluded property status is no longer fixed when assets are settled: assets are excluded property only "at times when the settlor is not long-term UK resident". One point matters greatly for older American trusts: "where the settlor of a trust has died before 6 April 2025, foreign settled property will be excluded property based on the old test" — so the date a grandparent died can change the exposure of an entire structure. See UK inheritance tax and long-term residence.
Form 3520 is a foreign trust form. A US person reports distributions from a foreign trust in Part III. A distribution from a domestic US trust is not reported there — the beneficiary's share arrives on Schedule K-1 (Form 1041). Part IV separately covers large gifts and bequests from foreign persons, the threshold for amounts from a non-resident alien or foreign estate being aggregate receipts above $100,000 in the year. Form 3520 is due "the 15th day of the fourth month following the end of your income tax year", later for those abroad or on extension.
Classification is a question, not an assumption. A trust is domestic only where a court within the United States exercises primary supervision over its administration and one or more US persons have authority to control all substantial decisions. Arrangements drift — trustees move abroad, a protector acquires powers — so a trust plainly domestic when drafted can fail the tests later.
A grantor trust pushes income upstream. Its income belongs on the settlor's US return, not yours, so you may receive money carrying no US tax for you at all while the UK still treats what reaches you as a taxable benefit or matched capital payment. That asymmetry, not double taxation in the ordinary sense, is the real problem: UK tax on an amount that produced no US liability leaves nothing obvious to credit against it.
US trustees track distributable net income. They do not track section 1(3) amounts or relevant income, have no UK reporting duty, and no reason to hold the facts a UK beneficiary needs. Ask them in writing for:
If the trustees will not produce a gains history, say so in the return and explain the basis of the figures used. A documented estimate with the working shown is a better position than silence.
| What you have received | Likely UK treatment | Establish first |
|---|---|---|
| Income distribution from a US non-grantor discretionary trust | Income tax on the amount received, no tax credit; ESC B18 only if trustees met their UK obligations | Whether trustees treated it as income; trust income by source and year |
| Capital distribution from a US non-grantor trust | Section 87 matching to section 1(3) amounts, last-in first-out, plus the section 91 supplementary charge | Full section 1(3) history; every capital payment to every beneficiary |
| Distribution from a US revocable (grantor) trust, settlor living | US income stays with the settlor; the UK still tests what reaches you | The US tax owner; whether the settlor is or has been UK resident |
| Rent-free use of trust property, or an interest-free loan | Capable of being a capital payment valued at the benefit conferred, or a section 731 benefit | Market value of the benefit; whether full consideration was paid |
| A benefit where the trust has foreign relevant income | Section 731 benefits charge, comparing benefits with available relevant income | Relevant income year by year; all earlier benefits received |
| Any payment where the settlor is UK resident and can benefit | Settlements legislation on income; section 86 attribution to the settlor | Settlor's residence history; whether settlor or spouse can benefit |
| Any payment inside your first four UK years after 10 years abroad | A FIG claim may relieve section 731 deemed income and section 87 matched gains | Exact UK residence history; whether the window is open |
1. Register if a return is needed — for 2025-26, by telling HMRC by 5 October 2026.
2. Choose the right pages. HMRC's non-resident trusts guidance directs beneficiaries to the SA107 "Trusts etc" pages, while the Trusts manual directs a discretionary income payment from a non-resident trust to the Foreign pages. Which applies turns on the nature of the payment.
3. Report the right amount. Income gross, with no tax credit; matched gains and section 731 deemed income in the year the payment or benefit was received. Claim FIG if eligible, each year, keeping the residence evidence.
4. File and pay. For 2025-26: paper returns by 31 October 2026, online returns and payment by 31 January 2027.
5. Make any ESC B18 claim separately, within five years and ten months of the end of the tax year of payment.
Trust taxation across two systems is genuinely specialist work. Section 87 matching, the section 91 supplementary charge, the section 731 comparison of benefits with relevant income and the post-2025 residence rules interact in ways that depend on facts stretching back decades, and the Budget on 28 October 2026 may change parts of it again. Nothing here is a computation of your position. Any live distribution, any addition of a UK resident to a US trust, and any restructuring should be reviewed on the documents by professionals qualified in both jurisdictions before anything is signed.
The sequence that works is: establish the facts from the trustees, fix the UK characterisation, then file. At Next Tax Source an ACCA-qualified accountant handles the UK position and a licensed CPA or Enrolled Agent the US position, and every filing is reviewed and signed off by the licensed professional responsible for it. Our US and UK tax specialists can scope a two-sided review of the trust, or you can book a consultation with whatever documents you already hold.
This is general information about the rules in force at the date shown, not advice on your circumstances.