INTM603500 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017 to 5 April 2025: Benefits charge in respect of close family members
Source: gov.uk (2025-04-07)


The Finance (No. 2) Act 2017 introduces an additional charge on the settlor in respect of benefits that are provided to a beneficiary who is:
- a close family member of the settlor, and
- not UK resident in the year that the benefit is received
or, alternatively, where the beneficiary is:
- a close family member of the settlor, and
- a UK resident remittance basis user, and
- the benefit is not remitted to the UK (or is only partly remitted to the UK)
In these situations, the effect of the charge is to assess the settlor to the proportion of the benefit received by the beneficiary that is not taxed on the beneficiary in the UK. The legislation in relation to this additional charge can be found at ITA07/S733A.

The charge will apply if the following conditions are met:
- the settlor is UK resident at some time in the tax year
- the settlor is not UK domiciled at any time in the tax year
- the settlor is not regarded as UK deemed domiciled at any time in the tax year because of being born in the UK and having a UK domicile of origin
- at no time in the tax year were the trustees of the settlement UK resident
- an amount of income is treated as arising to an individual under ITA07/S732 in a tax year
- an amount of relevant income that is protected foreign-source income (PFSI) for the purpose of Rule 2 of either ITA07/S721(3B) or ITA07/S728(1A) (see INTM603260 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603260) or INTM603320 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603320)), and with
- a benefit received by the individual at a time when the individual was a close family member of the settlor. Details of who is a close family member can be found below.
For the charge to apply, the individual receiving the benefit must not be UK resident at any time in the tax year concerned or is a remittance basis user in the year and none (or only part) of the income treated as arising under ITA07/S732 is remitted to the UK in the year.

In such circumstances the settlor is liable to tax under ITA07/S731 on that income, as if the amount was the income of the settlor in the year. The individual who receives the benefit will not be liable in any later year for income tax on the amount.

If the remittance basis applies to the individual and part of the income treated as income arising under ITA07/S732 is remitted to the UK in the year, the settlor will be liable to tax under ITA07/S731 on the remainder as if it were income arising to them. The individual who receives the benefit is not liable to tax on the income in a later year, should they remit the remainder of the benefit to the UK.

The amount of income on which the settlor will be assessable under ITA07/S732 may be the whole, or part only, of the amount treated as arising to the individual. When the remittance basis rules apply in relation to the remittance of income by the close family member receiving the benefit, for the purposes of this section ITA07/S735 will need to be read as applying (see INTM602160 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602160) onwards).

For the purpose of assessing a benefit provided to a close member of the settlor’s family on the settlor, a close family member of the settlor is defined at ITA07/S733A(7) as:
- the settlor’s spouse or civil partner, or
- a minor child of the settlor, or a minor child of the spouse or civil partner of the settlor.
If two people are living together as if they were spouses, for the purposes of the legislation they will be treated as if they were spouses. Likewise, if two people of the same sex are living together as if they were civil partners, then they will be treated as if they were civil partners.

It should be noted that the settlor is entitled to recover any tax paid as a result of a benefit provided to a close family member from the individual who receives the benefit.

From 6 April 2025, the rules around the taxation of non-UK domiciled individuals ended and individuals are taxable based on their residence position only. This section only applies to the treatment of non-domiciled and deemed domiciled individuals for the years from 2017 - 2018 to 2024 - 2025. Detailed guidance on the changes made to the close family member rule from 6 April 2025 can be found at INTM603715 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603715).

Example 1

Sue has been UK resident since 1999, but she is not UK domiciled. Sue is married to Sam who is both UK resident and domiciled. During the year 2017 – 2018, Sam is treated as non-UK resident as he is working abroad full-time.

In 2014 - 2015 Sue settles a non-resident trust for the benefit of herself and her husband. It is assumed that the transfer of assets abroad legislation applies to the arrangements and for the purposes of the example the possible application of other tax legislation is ignored.

The trustees receive overseas income and make a number of capital distributions as follows:

The benefits chargeable in 2017 - 2018 and 2018 – 2019 for Sue and Sam will be as follows (see INTM603440 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603440) for the calculation of benefits):

2017 – 2018: Sue

Total taxable benefits received in year (£50,000 + £10,000) = £60,000

Total relevant income (£5,000 + £15,000 + £20,000 + £70,000) = £110,000

Available relevant income (£110,000 - £40,000) = £70,000

(The deduction of £40,000 relates to the benefits received by Sam in the years 2014-2015 to 2016-2017.)

The amount of income treated as arising will be the lesser of £60,000 (total untaxed benefits) and £70,000 (available relevant income), so the amount assessable will be £60,000.

It should be noted that - for the purpose of matching relevant income - the relevant income is ordered using ITA07/S735A. If the benefit received by Sam was matched with relevant income arising in a year before 2017-2018, this income would not be PFSI and no charge could arise on Sue under the close family member rules.

2017 – 2018: Sam

As Sam is not UK resident in this tax year, he will have no liability. Because Sam is a close member of the settlor’s family, Sue will be assessable on the benefit provided to him in the year (see calculation for Sue above). Sue has paid tax on a benefit received by Sam, so she will have the right to recover the tax paid on the £10,000 benefit received by Sam.

2018 – 2019: Sam

Total taxable benefits (£10,000 + £20,000 + £10,000 + £10,000 + £40,000) = £90,000

(These are all the benefits received by Sam in the above table)

Total untaxed benefits (£90,000 - £50,000) = £40,000

(The £50,000 deduction includes
- the £10,000 benefit Sam received in 2014-2015,
- the £20,000 benefit Sam received in 2015-2016,
- the £10,000 benefit Sam received in 2016-2017, and
- the £10,000 benefit assessable on Sue in 2017 – 2018
Relevant income of the tax year = £60,000

Total relevant foreign income (£5,000 + £15,000 + £20,000 + £70,000 + £60,000) = £170,000

Available relevant income is
- £170,000 (total relevant foreign income for all years) less
- £40,000 (the benefits received by Sam in the years from 2014-2015 to 2016-2017) less
- £60,000 (the benefits charged on Sue in the year 2017 – 2018)
= £70,000

The amount of income treated as arising will be the lesser of £40,000 (total untaxed benefits) and £70,000 (available relevant income), so the amount assessable will be £40,000.

It should be noted that ITA07/S735A (see INTM602200 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602200)) is also expanded by Finance (No 2) Act 2017 so that it can apply in situations where a charge arises under ITA07/S733A. An additional section has been added (ITA07/S735B) such that in relation to income, if:
- the income is treated by ITA07/S732 as arising to a beneficiary in a tax year, and
- the settlor is liable to tax on the income under ITA07/S733A (because the beneficiary is a close member of the settlor’s family), and
- the remittance basis applies to the settlor for the year in question
the income will be treated as relevant foreign income of the settlor. This is referred to as “transferred-liability deemed income”. When considering the application of ITA07/S735 (see INTM602200 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602200)) as it applies to the beneficiary, any benefit or relevant income relating to any part of the transferred-liability deemed income for the purposes of the remittance basis as it applies in relation to the settlor, the benefit or relevant income is treated as deriving from that part of the transferred-liability deemed income.

Example 2

Julian is not UK domiciled but has been UK resident since 1990. At the end of the year 2016 - 2017 he settles a non-resident trust of which both he and his wife Amanda are beneficiaries. Amanda has been UK resident for the last 3 years, but she is not UK domiciled.

During the years 2017 - 2018 and 2018 - 2019 the following income and capital distributions arise:

As Julian established the trust before he became deemed domiciled under ITA07/S835BA condition B (see INTM603220 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603220)), any income arising that meets the relevant conditions will be protected foreign-source income (PFSI) (see INTM603260 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603260)).

For the purposes of the example, we will assume that the transfer of assets abroad legislation applies to the arrangements. As all the income arising within the structure is foreign-source income, both Julian and Amanda will be assessable under ITA07/S731 on the benefits that they have received.

The amounts treated as assessable on Julian and Amanda for the years 2017 - 2018 and 2018 - 2019 will be as follows:

2017 - 2018

Amanda

The benefit of £4,000 will be matched with the foreign income of £10,000 received by the trust in April 2017. Amanda is a remittance basis user and so will be assessable on the £2,000 that she has remitted to the UK.

Julian

Julian has received a benefit of £5,000 and this will be matched with the foreign trust income of £10,000 received in April 2017. Amanda is a close member of the settlor’s family and, as she is a remittance basis user, ITA07/S733A will apply to any benefit she has received that has not been remitted to the UK. In this instance £2,000 of the benefit she received has not been remitted to the UK, so Julian will be assessable on this as well as the benefit that he received during the year. This means that Julian will be assessable on total benefits of £7,000 in the year. Julian will have the right to claim re-imbursement from Amanda in respect of the tax he has paid on the £2,000 of Amanda’s benefit.

There will be unmatched income of
- £1,000 (£10,000 - £4,000 - £5,000) of the amount received in April 2017, and
- £5,000 received in January 2018.
2018 - 2019

Amanda

The benefit received by Amanda in June 2018 of £3,000 will be matched against
- the balance of the £1,000 of trust income received on 30 April 2017 and
- £2,000 of the trust income received in January 2018.
The benefit received by Amanda on 30 November 2018 of £10,000 will be matched with
- £3,000 of the trust income received in January 2018 and
- £7,000 of the trust income received in April 2018.
Amanda will only be assessable on £2,000 of the benefit received as this is the amount that she has remitted to the UK during the year.

Julian

Julian has not received any benefits during 2018 - 2019 on which he will be assessable.

However, as Amanda is a remittance basis user and close member of Julian’s family, Julian will be assessable under ITA07/S733A on any benefits that Amanda receives that are not remitted to the UK.

Amanda received a benefit of £3,000 that has not been remitted to the UK in June 2018, and a further benefit in November 2018 of which £8,000 has not been remitted to the UK.

As a result, Julian will be assessable on £11,000 of the benefits received by Amanda during 2018 - 2019. Julian will have a right to claim re-imbursement of any tax paid from Amanda.