Some of China's richest people are winding down their offshore trusts, selling shares, and even switching nationality as a deadline looms to declare income booked overseas, say wealth advisers, lawyers and others familiar with the matter.

The move is part of tougher scrutiny of capital outflows and rule enforcement amid growing fiscal strains as the world's second-largest economy battles with persistent weakness in domestic demand and broader economic imbalances.

At the same time, tax officials have also stepped up efforts to gather information on wealthy individuals in their jurisdictions and are setting up dedicated teams to scoop up taxes owed on offshore incomes, they said.

Founders of Hong Kong- and U.S.-listed Chinese firms would be hit the hardest in the latest tax move, as many of them sold shares through trusts at peak valuations between 2014 and 2020, said Oscar Liu, CEO of wealth adviser JLT Legacy Group.

"We estimate that the tax payable in a single case could range from a few million yuan to hundreds of millions, or even billions," said Liu, whose firm has offices in Hong Kong and Singapore.

In late July, Beijing set an October 22 deadline for the declaration of offshore trust income, with a tax of 20% to be imposed on such profits, triggering a scramble among wealthy Chinese individuals to tot up liabilities.

Boston Consulting Group estimates China's offshore wealth at about $1.7 trillion, and offshore trusts have gained popularity in recent years as a tool for top shareholders of overseas-listed Chinese companies to park wealth outside the country.

China's State Taxation Administration has ordered employees to chase up those liable for offshore trust tax, working from a list drawn from the Hurun wealth rankings, corporate filings and other public information, three people said. The people, who have knowledge of the matter, sought anonymity as the measures are confidential.

Taxmen in some provinces and cities with numerous wealthy entrepreneurs have set up special task forces dedicated to gathering information on offshore trusts, Liu added.

China's State Council, or cabinet, declined to respond to a Reuters request for comment. The State Taxation Administration and the finance ministry did not respond to requests for comments.

The unexpected trust tax move has spurred a dash for cash in some cases.

A family office lawyer said clients cannot offset share-price losses against tax bills, while property developers who received large dividends in past years are now too weak financially to pay what they owe, as real estate languishes.

A tech billionaire's family office said it now spends more time calculating tax than trading and is selling about half its equity portfolio.

"It is like pulling the rug from under one's feet," said a person working there, referring to the demand to pay in cash within three months.

Banks are now lending to private clients to cover tax bills, with the loans secured against shares in the clients' own companies, said a private banker with a major international bank who deals with high net worth individuals and family offices.

China's offshore trust tax regime has also forced some of its wealthy to restructure businesses and family wealth holdings. Some have even shut newly established trusts before funding them, said one trust lawyer in Hong Kong.

A mainlander with Hong Kong citizenship, now working as an insurance agent in the Asian financial hub, said she was giving up her mainland residency to keep her husband's wealth out of Beijing's reach, even though he is not a mainland tax resident.

JLT's Liu said few offshore trust holders would rush into new investments, as they calculated tax liabilities.

Even those of China's wealthy who have started looking for options to pay taxes are confused by some aspects of the new rules that are unclear, from coverage targets and retroactive application to payment logistics.

"The net is very wide," said Wei Kang, a partner at law firm Charles Russell Speechlys who advises high-net-worth individuals and families on complex trust and estate structures, tax and compliance. July's new tax rule ties liability to whether a taxpayer's "principal economic interest" lies in China, a concept open to interpretation that may not easily be settled by physical presence or citizenship, Kang added.

It is also unclear whether tax applies from the time a trust is set up, or for a limited period, she said.

The new rules also require those with offshore trust income to submit their own calculation of tax due by the October 22 deadline, and pay once authorities confirm the figure, said JLT Legacy Group's Liu.

In practice, however, enforcement varies by city with room in some cases for negotiation on repayment, seven people said. There is also no clear limit on how far back tax liability on dividends or share sales stretches, said three people.

"The devil is in the detail," Kang said. "A lot of details are lacking."