INTM603520 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017 to 5 April 2025: Benefits charge on onward gift recipients - basic conditions
Source: gov.uk (2025-04-07)


The benefits charge at ITA07/S731 works by charging tax on notional income that is treated as arising to an individual because the conditions set out in ITA07/S732 have been met (see INTM601480 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm601480)). The scope of the benefits charge at ITA07/S731 has been extended to ensure that protected foreign-source income (PFSI) (see INTM603260 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603260)) arising within an offshore trust structure cannot escape a charge to tax by being routed through an individual who is not taxable on that income.

INTM603480 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603480) looked at the introduction of a benefits charge in respect of close family members of the settlor which was introduced with effect from 6 April 2017.

Finance Act 2018 introduced a further benefits charge where the onward gift conditions are met, and the recipient of the onward gift is UK resident. The broad effect of the onward gift rules is that the non-taxable individual’s notional income under ITA07/S732 is attributed to the individual in receipt of the onward gift, unless and to the extent that the first recipient is a remittance basis user and has been taxed on the income because it has been remitted to the UK. The legislation dealing with this can be found at ITA07/S733B to S733E and came into effect from 6 April 2018. The following paragraphs look at how this legislation applies.

This page looks at ITA07/S733B that sets out the basic conditions for when an individual is treated as the recipient of an onward gift. INTM603540 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603540) then goes on to look at cases where income is treated as arising to the recipient of an onward gift. INTM603560 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603560) looks at cases where deemed income is attributed to the recipient of an onward gift, and INTM603580 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603580) looks at situations where the settlor is treated as being liable following an onward gift.

An individual is the recipient of an onward gift if the following conditions are met:
- an amount of income is treated as arising under ITA07/S732 to an individual (“the original beneficiary”) in a tax year (“the arising year”), but not by virtue of ITA07/S733C (see INTM603540 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603540)), nor ITA07/S733E (see INTM603580 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603580)).
- under ITA07/S735A (if it applied for the purpose) the amount would be matched with an amount of relevant income that is PFSI for the purposes of ITA07/S733A(1)(b)(i) (see INTM603260 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603260) and INTM603320 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603320)), and with the whole or part of a benefit received by the original beneficiary.
- at the time that the benefit is received by the original beneficiary (“the distribution time”) there are arrangements, or there is an intention, as regards the (direct or indirect) passing on of the whole or part of that benefit to another person, and it is reasonable to expect that, in the event of the whole or part of that benefit being passed on to another person as envisaged by the arrangements or intention, the other person will be UK resident when they receive at least part of what is passed on to them.
- the original beneficiary makes, directly or indirectly, a gift (“the onward payment”) to a person (“the subsequent recipient”) at the distribution time, or at any later time in the 3 years beginning with the start time, or at any time before the distribution time and, it is reasonable to assume, in anticipation of the receipt by the original beneficiary.
- the gift is of or includes the whole or part of the benefit received by the original beneficiary, or anything that derives from it or represents the whole or part of the benefit, or any other property, but only if the benefit is provided with a view to enabling or facilitating the making of the gift of the property to the subsequent recipient.
- except where an individual is liable as a result of ITA07/S733A(2) or (3) as a close family member (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)) for the tax charged under ITA07/S731 on the amount mentioned in (a) above, either the original beneficiary is non-UK resident for the arising year, or ITA07/S809B, D or E (remittance basis) applies to the original beneficiary for the arising year and none of the amount referred to in the first bullet point above is relevantly remitted before the end of the charging year, and
- where an individual is liable as a result of ITA07/S733A(2) or (3) as a close family member (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)) for the tax charged under ITA07/S731 on the amount mentioned in (a) above, ITA07/S809B, D or E (remittance basis) applies to that individual for the arising year and none of the amount is relevantly remitted before the end of the charging year.
With regard to the third bullet point above, ITA07/S733B(6) makes it clear that where the original beneficiary makes a gift to the subsequent recipient out of the benefit they received, it is presumed that at the time that the benefit was received, there was an arrangement or intention to pass the whole or part of the benefit to another person. This means that the onus will be on the parties involved to demonstrate that there were no clear arrangements or intention of passing on the benefit provided. If the provision of the onward benefit is provided inadvertently, or because of some change in circumstances that could not have been envisaged at the time of the original benefit, the onus will be on the parties to demonstrate this, and if they do then the onward gift rules will not apply.

An arrangement is defined at ITA07/S733B(7) as including any
- agreement
- understanding
- scheme
- transaction, or
- series of transactions
whether or not they are legally enforceable.

The aim of the provisions is to prevent individuals from entering into pre-ordained arrangements.

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 onward gift rules from 6 April 2025 can be found at INTM603725 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603725).

The examples below demonstrate how the above conditions may apply.

Example 1

Rebecca has been UK resident since 1999, but she is not UK domiciled having a domicile of origin in France. In March 2015 she settled £1,000,000 into a non-resident trust. The trustees have invested the funds offshore and receive £50,000 in foreign income each year. Rebecca is a beneficiary of the non-resident trust as is her brother Simon. Simon is not UK resident as he lives in France.

In the years 2015-2016 and 2016-2017 the trustees distribute the income of the trust into Rebecca's Jersey bank account.

Rebecca will be treated as UK deemed domiciled from 6 April 2017 because of the number of years that she has been UK resident. In 2019 - 2020 Rebecca wants to receive a capital distribution of £50,000 from the trustees of her non-resident trust, but rather than receive the distribution directly, she asks the trustees to make the distribution to Simon because he is non-UK resident, on the understanding that Simon will then give the £50,000 he receives to Rebecca shortly afterwards.

The arrangements would come within the provisions of the onward gift regime because:
- the £50,000 would be treated as arising under ITA07/S732 to an individual
- Simon, the original beneficiary is not UK resident
- the amount would be matched with an amount of PFSI as in each year the trustees are in receipt of £50,000 of PFSI for 2017-2018 onwards.
- it is clear from the information we hold that at the time Simon receives the original benefit there was an arrangement in place for the funds to be passed to Rebecca, and
- Simon makes the £50,000 gift to Rebecca directly from the funds he received from the trustees within 3 years of receiving that sum.
Example 2

Using the same basic facts from Example 1 involving Rebecca and Simon, but now in 2020 - 2021 Simon approaches the trustees and asks them to provide £20,000 so that he can undertake some repairs on his house in France. The trustees advance Simon the funds and he uses the money to repair his property. However, the repairs only cost Simon £15,000 and Simon places the other £5,000 in a bank account he has in France, so that he has funds available should he need to undertake further repairs to the property. In 2022 - 2023 Rebecca wants to visit him in France and Simon pays £2,000 for the cost of her travel using part of the £5,000 he has saved.

In these circumstances, the £2,000 does not come within the provisions of the onward gifts regime, because at the time that Simon received the original benefit it was his intention to use all the funds to repair his house. This is why the trustees advanced him the funds, and it was only later that he used that part of the funds he did not use to repair the house to pay his sister’s travel costs. Clearly when the funds were originally advanced Simon had no intention of providing any benefit to his sister, and so as this was not part of an arrangement.

Note

In Examples 1 and 2, if the original beneficiary (Simon) had been UK resident and a remittance basis user and part of the amount potentially to be treated as an onward gift has been remitted to the UK by him, it would only be the remainder - that is the part of the income that had not been remitted - that could be treated as an onward gift under these provisions. This is because the amount that was remitted would have been assessable on the original beneficiary (Simon) by virtue of the fact he had remitted it to the UK.

Where an individual is assessable under the onward gift provisions, the original beneficiary will not be chargeable to tax on any amount of the original benefit that has been assessed on another individual as an onward gift, or where the settlor has become assessable following an onward gift.

Example 3

Stuart has been UK resident since 1997 but not UK domiciled. He settled £1,500,000 into an offshore trust in 2015. Stuart is also a beneficiary of the trust along with his brother Nigel who came to live in the UK in 2014. Nigel is not UK domiciled.

The trustees have invested the settled funds in overseas investments that generate income of £100,000 each year. In the years up to 2017-2018, the trustees have distributed the trust income to Stuart to assist in meeting his overseas expenses. Stuart becomes UK deemed domiciled from 6 April 2017.

In 2019-2020 Stuart needs funds to meet some liabilities that he has in the UK and to pay some expenses he incurred in relation to a property he owns in Spain. Rather than receive the funds directly, he arranges for the trustees to make a distribution of £100,000 into his brother’s offshore bank account. Nigel arranges for £30,000 of this £100,000 to be transferred into his own UK bank account. Nigel then gives £20,000 of the £30,000 to Stuart so that he can pay off his UK expenses and Nigel later uses the rest himself. Nigel also arranges for the remaining £70,000 he received from the offshore trustees to be paid to the builders in Spain who are undertaking some renovation works on Stuart’s Spanish property.

For the purpose of this example, it is assumed that there is sufficient PFSI within the structure to match against the distribution. There will be no relevant income in the years up to 2017-2018 as the trustees have paid away that income.

Nigel

Nigel has received a distribution of £100,000 which is potentially assessable on him under ITA07/S731. However, as Nigel is a non-UK domiciled remittance basis user, he will only be assessable to the extent that he remits the funds received to the UK. As a result, Nigel will be assessable on £30,000 of the £100,000 distribution as this is the amount of the benefit matched with PFSI that he has remitted to the UK.

Stuart

Stuart has not received a benefit directly from the trust. However, we are told that he arranged for the distribution to be made to Nigel in order that Nigel could pass funds from that distribution to him so Stuart could use it to meet some of his expenditure. Of the £100,000 that Nigel received, he has made £90,000 available to Stuart. However, of this amount Nigel was assessable on £20,000 of the funds as he remitted them to the UK. As Nigel is liable to pay tax on this £20,000 it is not treated as an onward gift and the amount that Stuart will be assessed on as an onward gift will be £70,000.