INTM603695 - Transfer of assets abroad: 6 April 2025 non-UK domicile reforms: Benefits charge arising on previously non-domiciled and deemed domiciled settlors of non-resident trusts
Source: gov.uk (2025-04-07)


From 6 April 2017 special rules were introduced in relation to non-resident trusts settled by non-domiciled individuals and deemed domiciled individuals before they became deemed domiciled. These rules meant that the income charge in ITA07/S720 and ITA07/S727 would not apply to these individuals in respect of any foreign income arising in the non-resident trust or any underlying companies owned by it. This excluded foreign income was known as protected foreign-source income (PFSI). Instead, the transferors were taxed on any benefits that they received from the non-resident trust structure to the extent that the benefits were matched with the protected foreign-source income arising in the trust and its underlying companies. If the individual was non-UK domiciled and a remittance basis user, they would only be taxed on the benefit to the extent that such benefits were remitted to the UK. If the individual had become deemed domiciled in the UK, they would be taxed on the benefits they received anywhere in the world.

Any income that had arisen within the non-resident trust structure before 6 April 2017 that had not been charged to tax under either ITA07/S720 or ITA07/S727 because the transferor was a remittance basis user and the income had not been remitted to the UK, nor distributed by the trustees, was from 6 April 2017 categorised as transitionally protected income (TPI). Rather than being taxed when remitted, this income would be matched with benefits received and taxed accordingly.

From 6 April 2025 ITA07/S721A and ITA07/S728A, which defined PFSI, and the definitions of TPI at ITA07/S726(7) and ITA07/S730(7) have been repealed and replaced by new definitions at ITA07/S735AB for the purposes of ITA07/S735AA to S735AF. The definitions apply if a relevant transfer occurred before 6 April 2025 and the person abroad was the trustee of a settlement (or a company in which the trustees of a settlement were participators or indirect participators) and there is PFSI or unremitted TPI in relation to the transfer.

PFSI is defined at ITA07/S735AB as income of the person abroad that by reference to the transfer
- would have been treated as arising to the settlor under ITA07/S721 in any of the tax years 2017 - 2018 to 2024 - 2025 had it not been PFSI within the meaning of ITA07/S721A, as that section had effect for the tax year, or
- would have been treated as arising to the settlor under ITA07/S728 in any of the tax years 2017 - 2018 to 2024 - 2025 had it not been PFSI within the meaning of ITA07/S728A, as that section had effect for that year.
TPI is defined at ITA07/S735AB as income of the person abroad that by reference to the transfer
- was treated as arising to the settlor under ITA07/S721 or S728 in a tax year earlier than the tax year 2017 - 2018,
- was not remitted to the UK in any of the tax years 2017 - 2018 to 2024 - 2025, and
- was TPI within the meaning of ITA07/S726(7) or ITA07/S730(7) throughout the tax years 2017 - 2018 to 2024 - 2025, as those provisions had effect for the tax year.
Example

Mr E is resident but not domiciled in the UK and is a remittance basis user. In April 2013 he settled a trust in Guernsey with £1 million, the E Trust. Mr E is a beneficiary of the trust. The trustees of the E Trust used the £1 million to subscribe for shares in a Guernsey company E Ltd. E Ltd used the funds to acquire overseas investments which generated £75,000 each year. Neither E Ltd nor the E Trust made any distributions and neither have remitted funds to the UK. Mr E became UK deemed domiciled on 6 April 2017.

For the years 2013 - 2014 to 2016 - 2017, the income arising to E Ltd of £300,000 will treated as Mr E’s income for the purposes of ITA07/S720. However, as Mr E is a remittance basis user and none of the funds were remitted to the UK, Mr E will have no income tax liability in respect of this income for these years.

For the years 2017 - 2018 to 2024 - 2025, for the purposes of ITA07/S720 the income arising to E Ltd of £75,000 per year (£600,000) will be PFSI and as such no liability will arise to Mr E as he received no benefits during the period to match against the PFSI. The income that arose in the earlier years will be treated as TPI and will only be taxable to the extent that it is matched to any benefits received by Mr E.

From 2025 - 2026 onwards, as the remittance basis of taxation no longer applies Mr E will be liable to income tax on the £75,000 arising to E Ltd each year under ITA07/S720. The income that arose in the years 2013 - 2014 to 2016 - 2017 will be treated as TPI and the income arising from 2017 - 2018 to 2024 - 2025 will be PFSI that can be matched against any benefits received by Mr E or by a member of Mr E’s close family (see INTM603715 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603715)). The TPI and PFSI may also be assessable if it comes within the onward gift provisions at ITA07/S735AF which are considered at INTM603725 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603725).

TPI is not to be taxed on remittance if it is brought to the UK after 2024 - 2025.