INTM603715 - Transfer of assets abroad: 6 April 2025 non-UK domicile reforms: Benefits charge in respect of close family members
Source: gov.uk (2025-08-14)


From 6 April 2017 the benefits charge in respect of close family members was introduced. It assessed a benefit provided to a close family member of the settlor of a non-resident trust on the settlor where the close family member was non-UK resident or was UK resident and a remittance basis user who did not remit the benefit to the UK. Further guidance on the charge can be found at INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500).

From 6 April 2025 and the introduction of the non-UK domicile reforms changes were needed to the close family member rules. Therefore,the legislation relating to the close family member rules at ITA07/S733A was repealed and new legislation was enacted at ITA07/S735AE. The rest of this page looks at these new rules.

The close family member rules will apply if:
- a benefit is provided to an individual out of assets which are available for the purpose as a result of a relevant transfer, or one or more associated operations,
- the individual is a close member of the settlor’s family at the time that the benefit was provided,
- the individual is either non-UK resident, or is a qualifying new resident (see RFIG44000 (https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig44000)) for the tax year in which the benefit is provided, and
- the settlor must be UK resident in the tax year in which the benefit is provided.
If the above conditions are met, then the benefit received by the close family member is treated for the purposes of ITA07/S732 and ITA07/S735AD (1) as having been provided to the settlor. The effect of ITA07/S735AD is to only tax a benefit treated as arising to the settlor if the benefit received is matched with an amount of relevant income that is protected foreign-source income (PFSI) or transitionally protected income (TPI) in relation to the relevant transfer. This contrasts with the previous close family member rules in ITA07/S733A where the settlor was only assessable if the close family member was not assessable on the benefit because they were either non-UK resident or a remittance basis user who did not remit all or part of the benefit they received. When applying the matching rules, the provisions at ITA07/S735A are applied. Detailed guidance on these matching rules is at INTM (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602200)602200 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602200).

A person is a close family member of the settlor at any time if the settlor is living at the time and:
- the person is the settlor’s spouse or civil partner at the time, or
- the person is a child of the settlor (or of a person who at the time is the settlor’s spouse or civil partner) who at the time has not reached the age of 18.
If two people are living together as if they were a married couple or civil partners, then for the purpose of the close family member rules they are treated as if they were spouses or civil partners.

When the settlor has paid the tax on which they have become liable because of the close family member rules, the legislation entitles the settlor to recover the amount of tax paid from the close family member concerned. To assist the settlor in recovering this tax, the settlor may request from an officer of HMRC a certificate providing the following details:
- the tax year in which the income was treated as arising to the settlor,
- the amount of income treated as arising, and
- the amount of tax paid.
Example

John is UK resident but not domiciled in the UK and was a remittance basis user until he became deemed domiciled in 2017 - 2018. He settled a trust for the benefit of himself and his family in Jersey in April 2010: the J Trust. The trust held shares in a BVI company (J Ltd) which held foreign investments that generated income for J Ltd of £100,000 per year.

In the tax year 2024 - 2025 John married Janet. Before their marriage, Janet had been non-UK resident, but following her marriage to John she moved to live in the UK. In 2025 - 2026 Janet received a benefit from the trust of £100,000. As Janet is within her first 4 years of UK residence, she is a qualifying new resident, and she can claim exemption from tax on this income as it is foreign income. John - as the settlor of the trust and Janet’s spouse - will be assessable on the benefit under ITA07/S735E. John’s position can be summarised as follows:

2010 - 2011 to 2016 - 2017

The income of J Ltd for these years of £100,000 per year (total £700,000) would be assessable on John under ITA07/S720. However, as John is a remittance basis user and none of the income is remitted to the UK, he will have no income tax liability. The amount would only be assessableif the income were remitted to the UK.

2017 - 2018 to 2024 - 2025

John became deemed domiciled in the UK from 2017 - 2018 and so will be assessable on the arising basis. However, the income of J Ltd is PFSI and so will not be subject to a charge under ITA07/S720. John will only be taxable if he receives a benefit from the trust structure that can be matched with the PFSI of the structure which during the period totals £800,000. It should also be noted that the income of J Ltd that arose between 2010 - 2011 and 2016 - 2017 will have become TPI and so will only be taxed if matched to a benefit received by John.

2025 - 2026 onwards

The remittance basis of assessment and the trust protections do not apply to any income arising after 6 April 2025. Therefore, from 2025 - 2026 onwards John will be taxable on the £100,000 income arising to J Ltd each year under ITA07/S720.

Also, for the year 2025 - 2026 a benefit of £100,000 has been received by Janet, a close family member. Janet is not taxable on this because she is a qualifying new resident who has claimed the relief from tax on her foreign income. John as the settlor of the trust will be taxable on this benefit to the extent that it is matched with the TPI or PFSI in the trust structure. As the £100,000 will be matched with £100,000 of TPI in the structure, the benefit Janet received will be treated as a benefit assessable on John. He will have to pay tax on this amount. John will have the right to recover the tax paid on this from Janet.

There will be TPI of £600,000 and PFSI of £800,000 that remains unmatched.

In this example Janet has claimed relief from tax on the £100,000 benefit she received as she is a qualifying new resident who has claimed relief from tax on her foreign income. It should be noted that if Janet had not claimed the relief from tax on her foreign income in respect of the benefit she received John would still be taxable on this as he is the settlor of the trust and Janet is a close family member of John.