Nobody invalidated anything

Posted on: 25 August 2026

On 6 April 2025 the United Kingdom stopped asking where a person was domiciled and started asking how long they had lived here. For inheritance tax purposes the excluded property trust, the structure that allowed a non-domiciled individual to settle foreign assets before acquiring deemed domicile and keep them permanently beyond the reach of the Revenue, ceased to be permanent. Its status is no longer fixed at the moment the property enters the settlement. It now tracks the settlor's long-term residence, ten years out of the preceding twenty, tested at the date of each chargeable event, which means that a trust drafted in 2009 by a Zurich firm for a client who was then indisputably non-domiciled can fall into the relevant property regime without a single word of the deed being altered, exposed to charges of up to six per cent on every ten-year anniversary and on capital leaving the trust. There were no exceptions for structures already in existence. There was no argument about whether the trust was genuine, no allegation of sham, no attempt to look through the trustee's discretion. The deed remains valid, the trustee remains the legal owner, the beneficiaries retain exactly the rights they had the day before. Only the question the state chooses to ask has changed.

I set this out first because of what happened in Beijing on 24 July. The Ministry of Finance and the State Taxation Administration issued two announcements, effective the same day, imposing twenty per cent on the latent gain in assets settled into an offshore trust at the moment of settlement, twenty per cent annually on income the trust accrues whether distributed or not, twenty per cent on distributions and twenty per cent again if the settlor ceases to be a Chinese tax resident. Reuters covered the resulting scramble across Hong Kong and Singapore on 19 August. BCG puts Chinese ultra-wealthy capital held offshore at around 1.2 trillion dollars and the trusts domiciled in Hong Kong alone hold HK$5.2 trillion. The technical detail that the coverage mostly buried, and that the international firms flagged within days, is that the new rules do not invalidate anything either. They do not challenge the civil validity of the trust, they do not deny the effects the deed produces under its governing law. They treat it as transparent for the sole purpose of computing what one individual owes, and that individual is not the settlor named in the instrument but the resident contributor, whoever actually put the property in or is presumed to have done so.

It is worth being precise about what a trust sells, because opacity is the novelist's version. What it sells is irreversibility. The deed certifies that the property has ceased to belong to the person who settled it, that it has passed under the control of a third party bound by rules written once and enforceable against everyone including creditors and later generations. It is a commitment device in the purest form private law has produced. I tie my own hands today because tomorrow I may be older, weaker or more easily pressed by my children.

Neither administration attacked that device, and this is the part worth sitting with, because attacking it would have produced litigation and litigation produces uncertainty and delay. Both said instead that the trust is perfectly valid and the person carries on paying as though it were not there. There is nothing to defend in court because no attack was made. The structure is intact and the function that justified its cost has evaporated. A Swiss or Singaporean trustee minded to fight would find no counterparty, since nobody has disputed the deed.

Where the two diverge is in position along the chain rather than in principle. Westminster placed itself at the settlement's periodic anniversaries and at the point capital leaves, which is to say downstream, on the value as it sits and as it moves out. Italy, which does much the same thing in a different register under article 44 of its income tax code as amended in 2019, placed itself further downstream still, taxing the resident beneficiary when a distribution arrives and only then. Beijing placed itself at the entrance, then along the whole length of the pipe year by year, then at the exit and finally at the door, since a change of residence is itself a taxable event. The instrument is identical in all three. What differs is where the state stands when it looks.

The vocabulary, however, does not differ by position. It differs by geography. What happened here in April 2025 is called reform, arrived through a Budget and a Finance Act, was debated in Parliament and reported as the closing of a loophole that had survived since 1799. What happened in Beijing in July is called arbitrary and read as evidence that property rights in China are conditional on political tolerance. Both descriptions are accurate. Neither is complete, and the incompleteness runs in the same direction in each case, since both obscure that the mechanism is the same and that the mechanism is available to any tax authority that decides to use it.

There are two genuine differences and they should be stated rather than smoothed over. The first is retroactivity. Beijing is reaching back to January 2023 with ninety days to declare, and reserves the right to go further back if it considers the amount significant without saying how much further. Westminster changed the regime prospectively and provided transitional relief for structures settled before 30 October 2024. The second is what declaration costs. To file in China a family must produce a map of actual and presumed contributors, historic acquisition cost of every asset, market value at each settlement date, the control chain of every underlying entity, distributions made and deemed, changes of residence, foreign tax paid. That dossier reconstructs twenty years of a family's financial life and it goes to an administration that in the same month tightened reporting on outbound investment, which means part of it necessarily describes how the money left the country in the first place, a matter for the currency authority rather than the tax one. The lawyers Reuters spoke to put this carefully. It is a census in which the counted present themselves, holding the documentation, to avoid something worse.

British readers should nonetheless be slow to take comfort from the prospective character of our own version, and the reason arrived on 26 November last year. The Autumn Budget capped relevant property charges on excluded property trusts settled before 30 October 2024 at five million pounds and applied the cap from 6 April 2025, while introducing an anti-avoidance measure on trust exit charges with effect from the day of the announcement itself. Whether that is generous or restrictive depends on the trust. What it demonstrates is that the position of the state along the chain, having moved once in April, moved again nineteen months later, retrospectively in one direction and same-day in the other, and that both movements required a paragraph in a fiscal statement rather than a treaty, a referendum or a court.

Anyone who built one of these architectures over the past twenty years bought a separation. The separation was real as a matter of law and remains so. It rested, though, on a condition written nowhere in the instrument, which is that nobody would decide to look at it from that particular side. Chinese families found out in August what that condition was worth and the bill falls due on 22 October. There is a further provision nobody here has read yet, which extends Chinese tax residence to those holding foreign passports or foreign residence who continue to draw the principal part of their economic interests from China. The exit has been moved as well.