INTM603420 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017 to 5 April 2025: Benefits charge on non-domiciled or deemed domiciled settlors of non-resident trusts
Source: gov.uk (2025-04-07)


From 6 April 2017 to 5 April 2025 the protected foreign-source income (PFSI) arising in certain non-resident trusts and their underlying companies won't be subject to an income charge on non-domiciled and certain deemed domiciled settlors/transferors under the transfer of assets abroad legislation.

The Finance (No. 2) Act 2017 amended the benefits charge sections of the legislation to bring these individuals within the scope of the benefits charge. The charge was expanded so that in some circumstances the settlor/transferor would be assessable on benefits that had been provided to a person who was a close member of the settlor’s family or where there had been an onward gift (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500) and INTM603520 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603520) respectively).

The paragraphs below look at the changes that have been made to ITA07/S731 and ITA07/S732 to bring settlors and transferors within the scope of the benefits charge. For details of how the benefits charge is calculated, see INTM603440 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603440) onwards.

In ITA07/S731(1), with effect from 6 April 2017 to 5 April 2025, the reference to non-transferor was replaced with the term individuals to make it clear that a charge under ITA07/S731 was not just restricted to non-transferors for these dates.

An additional subsection ITA07/S731(1A) was added which stated that, if an individual was not UK resident in a particular tax year, then that individual would not be chargeable to tax in respect of any income arising under this section. This subsection had been introduced to prevent a charge arising on a non-resident individual and was previously covered by ITA07/S732(1)(b) (this is looked at in more detail below). However, ITA07/S731(1A) did allow for another individual being liable to tax on this income if ITA07/S733A (settlor liable for S731 charge on closely-related beneficiary: see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)) provided for such a charge.

In ITA07/S732 all the references to non-transferor in the section were removed and replaced with references to individuals. There were changes in ITA07/S732(1) which applied the section if:
- a relevant transfer occurs
- an individual receives a benefit in a tax year
- the benefit is provided out of assets which are available for the purpose as a result of the transfer or one or more associated operations (see INTM600300 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm600300))
- where there is a time in the year when the individual is relevantly domiciled, the individual is not liable to income tax under ITA07/S720 or S727 by reference to the transfer, and
- the individual is not liable to income tax on the amount or value of the benefit (apart from ITA07/S731).
The reference to the individual being resident in the tax year in which they receive a benefit was removed and was replaced by an individual who received a benefit in a tax year. This change had been made to enable a charge to arise on a settlor if
- a person who was a close family member of the settlor receives a benefit in a tax year in which they are non-resident (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)), or
- the settlor - or a close family member of the settlor - received an onward gift from an individual who is non-resident (see INTM603520 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603520)).
The amendment of ITA07/S732 prevent a tax liability arising under the benefits charge on an individual if at any time during the tax year they are relevantly domiciled and liable to income tax under either ITA07/S720 or S727.

An individual was defined as being relevantly domiciled at ITA07/S732(4) if at any time they
- were UK domiciled, or
- were UK deemed domiciled by virtue of being UK resident, and having been born in the UK with a domicile of origin in the UK.
Example 1

Dave was born in the UK with a UK domicile of origin. Dave has been living overseas for a number of years and has acquired a domicile of choice in Singapore. Dave is sent to work in London by his employer for a period of three years. Dave took advice before returning to the UK and settled property into a non-UK resident trust.

The trustees use some of the trust capital to purchase a property in London for Dave to live in. The trustees invest the remainder of the property in offshore investments that generate income of £100,000 per year.

On 6 April 2017 Dave is still UK resident and so will be treated as UK deemed domiciled by virtue of his place of birth and domicile of origin. As such, the income arising within the offshore trust will not meet the definition of PFSI. It is assumed for the purposes of this example that the conditions for the application of the transfer of assets abroad legislation are met and other taxing provisions are ignored.

Dave is in receipt of benefits from the non-resident trust: the use of the house. However, he will not be taxed on the benefits arising because he is treated as UK deemed domiciled by virtue of being born in the UK with a UK domicile of origin. Consequently, ITA07/S720 will apply and he will be assessable on the trust income arising in 2017 - 2018 of £100,000.

Example 2

Simon has been living in the UK since 1996. He is not UK domiciled. In 2014 Simon settled a non-resident discretionary trust of which he was a beneficiary with a substantial capital sum that he inherited from a distant relative.

The trustees purchased a property in London for Simon to live in and they invested the remainder of the funds in overseas investments. Simon is a remittance basis user and the trustees have not remitted any of the income arising in the trust to the UK, so no income tax liability arises on Simon in respect of the trust income. It is assumed for the purposes of this example that the conditions for the application of the transfer of assets abroad legislation are met and other taxing provisions are ignored.

In 2017 - 2018 Simon will be treated as UK deemed domiciled because he has been UK resident for the last 21 years (see INTM603220 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603220)). Because of this, Simon will from 2017 - 2018 to 2024 - 2025 be assessable under ITA07/S731 on the value of the benefits provided to him by the trustees (the use of the London property), to the extent that there is sufficient relevant income within the trust to match against the value of the benefit provided.

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 from 6 April 2025 can be found at INTM603615 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603615) onwards.