INTM603725 - Transfer of assets abroad: 6 April 2025 non-UK domicile reforms: Benefits charge on onward gift recipients
Source: gov.uk (2025-08-14)


From 6 April 2018 the benefits charge provisions in respect of onward gifts were introduced and were found at ITA07/S733B to ITA07/S733E. The aim of the provisions was to assess individuals who were the recipients of onward gifts where the initial benefit was provided to an individual who was not taxable on the initial distribution from a trust because they were either not UK resident or were UK resident and remittance basis users who had not remitted the benefit. Further guidance on the charges introduced from 6 April 2018 can be found at INTM603520 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603520) onwards.

From 6 April 2025 with the introduction of the non-UK domicile reforms changes were needed to the onward gift rules. Therefore, the legislation relating to the onward gift provisions at ITA07/S733B to E have been repealed from this date and new legislation introduced at ITA07/S735AF. The rest of this page looks at the new onward gift rules.

The onward gift provisions apply if:
- the benefit (“the original benefit”) is provided to an individual (“the onward recipient”) out of assets which are available for the purpose because of the relevant transfer or one or more associated operations,
- the original recipient is 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 year and makes a claim for relief in which they receive the original benefit, and
- the close family member rules at ITA07/S735AE (which attribute benefits to the settlor from the provision of the original benefit to the original recipient) do not apply to the provision of the original benefit to the original recipient.
At the time when the original benefit was provided to the original recipient there must be arrangements, or there is an intention, as regards the (direct or indirect) passing on of the whole or part of the original benefit to another person. It must also be reasonable to expect that, if the whole or part of the original benefit is passed on to another person in accordance with the arrangements, or intention, that other person will be UK resident when they receive at least part of what is passed on to them. For this purpose, arrangements include any agreement, understanding, scheme or transactions or series of transactions.

The original recipient of the benefit must provide the onward gift to the subsequent recipient at the time when the original benefit is received by them or at any later time but no later than 3 years from the date on which the original benefit was received. The onward gift can also be made at any time before the original benefit was received by the original recipient if it is reasonable to assume that it was provided in anticipation of the original benefit being provided.

The onward gift must include:
- the whole or part of the original benefit, or
- anything that wholly or in part and directly or indirectly derives from or represents the whole or part of the original benefit.
It can also include any other property, but only if the original benefit is provided with a view to enabling or facilitating, or otherwise in connection with the property being provided to the subsequent recipient.

When the original recipient of the benefit is a is a qualifying new resident but does not make a claim for relief, they will be taxable on the benefit received under ITA07/S731 and in these circumstances, HMRC will not seek to apply the onward gift rules to an onward recipient where the original recipient has paid tax on benefit received.

Nigel is the beneficiary of a non-resident trust, the S Trust, settled by Simon who is also a beneficiary of the trust. Nigel is not UK resident. Simon is UK resident, but is non-UK domiciled. The trust was established in April 2014 and has an underlying company which generated foreign income for each of the years 2014 - 2015 to 2024 - 2025. Consequently, the trust structure contains both transitionally protected income and protected foreign-source income (see INTM603695 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603695)). Simon would like to receive a capital distribution from the trust in 2025 - 2026 to meet some unexpected expenses of £100,000 he has incurred. Rather than distribute capital to Simon, the trustees distribute £100,000 to Nigel on the understanding that Nigel will give the funds to Simon. As the original recipient Nigel is not UK resident, and under an arrangement has passed the original benefit to Simon, this onward gift will come within the onward gift regime.

In 2026 - 2027 Nigel moves to the UK. In 2027 - 2028 Simon again requires funds. Nigel has been UK resident for less than 4 years in 2027 - 2028 and is a qualifying new resident. The trustees again make a distribution of £100,000 to Nigel on the understanding that he will pass the funds on to Simon. Nigel makes a claim under the 4-year FIG regime and so the £100,000 will be exempt from tax in respect of Nigel. However, because Nigel is a qualifying new resident, who has made a claim for relief and has passed the original benefit to Simon under an arrangement, it will come within the onward gift regime and Simon will be taxable as the subsequent recipient.

The amount of the onward gift which makes up the whole or part of the original benefit is treated as a benefit provided to the subsequent recipient out of the assets which are available for the purpose for the purposes of ITA07/S732 (non-transferors receiving a benefit as a result of a relevant transfer), ITA07/S735AD(1) (settlor being liable for a benefits charge despite being a transferor) and ITA07/S735AE(1) (settlor liable to benefits charge in place of a close family member).This means that the onward gift provisions can apply to any onward recipient who is
- UK resident,
- a UK resident settlor of a previously protected non-resident trust if there is protected foreign-source income (PFSI) or transitionally protected income (TPI) against which the original benefit is matched, or
- a close family member of a non-UK resident or qualifying new resident.
Example 2

The X Trust is a Jersey resident trust which was settled by Ralph in 2014 - 2015 when he was UK resident but non-domiciled. Ralph became deemed UK domiciled in 2017 - 2018. Ralph is a beneficiary of the trust along with his wife Racheal and their two adult children Paul and Phillipa. The X Trust holds shares in a Guernsey resident company X Ltd. X Ltd receives foreign income of £250,000 per year. For all years up to 2024 - 2025 the trust has made no capital distributions, and it is calculated that at the end of 2024 - 2025 X Ltd has TPI of £750,000 and PFSI of £2,000,000.

During the year 2025 - 2026 Phillipa is non-UK resident, and she receives a capital distribution of £300,000 on the understanding that she will pay £100,000 to her UK resident brother Paul and £100,000 to her mother Racheal who is also non-UK resident during the year.

In this situation as Phillipa is not UK resident she will not be assessable on the benefit of £300,000 that she received. However, as she has made two onward gifts of £100,000 each under an arrangement, the recipients of the onward gifts are treated as having received a benefit and we need to consider each of their circumstances in turn.

Phillipa’s brother Paul has received an onward gift of £100,000. Paul is UK resident he will be assessable on this benefit as the onward gift will be treated as arising to him under ITA07/S732 and because there is sufficient relevant income within the structure to match against the onward gift.

Phillipa’s mother Rachel also received an onward gift of £100,000. As she is not UK resident in the year of receipt, she will not be taxable on the benefit. However, as she is married to Ralph, the settlor of the trust, ITA07/S735AE will apply and the £100,000 will instead be treated as being provided to Ralph for the purposes of ITA07/S732 and under ITA07/S735AD (1) the £100,000 will be taxed as a benefit to Ralph. It will be matched with TPI arising in the structure. Ralph will be able to recover the tax he pays on the benefit from Rachel under the close family member provisions. Following the changes from 6 April 2025 in 2025 - 2026 Ralph will also be chargeable on the £250,000 of income arising to X Ltd under ITA07/S720 as the transferor given that, as a beneficiary of the trust, he has power to enjoy.

The onward gift provisions allow for the taxation of the original benefit if the original recipient provides a benefit to the subsequent recipient if there is a series of two or more benefits beginning with the benefit provided to the subsequent recipient. In such circumstances the final benefit must be received within the 3-year time limit from the original benefit being provided and, when considering whether the onward gift includes the whole or part of the benefit or anything representing it,the reference is to each benefit in the series that are made.

Example 3

The B Trust is a Guernsey resident trust established by Briana UK resident but non-domiciled individual. The trust was established in 2010, and its underlying entities have been in receipt of foreign income since the trust was settled. Brian and his three adult children, Margaret, James, and Julie are all beneficiaries of the trust. Margaret and Julie are both non-UK resident and James only became UK resident in 2025 - 2026 and so is a qualifying new resident.

In 2026 - 2027 Brian needs £100,000 to meet some expenses in the UK. Rather than have the trustees make a capital distribution to him directly, the trustees distribute the £100,000 to Margaret who in turn advances the amount to James in the UK. James then gives the £100,000 to his father Brian.

Under the onward gift provisions Brian will be assessable on the £100,000 benefit. The receipt of the £100,000 by Margaret is the original benefit, but as the original recipient Margaret is not UK resident, she is not liable to a charge under ITA07/S731. The advance to James is an onward gift in the series, but James will not be taxable on it as he is a qualifying new resident who has made a foreign income claim. The next onward gift in the series is the gift from James to Brian. This is the final onward gift in the series and Brian is UK resident during the year of receipt. Although Brian is the transferor in respect of the offshore trust structure, ITA07/S735AD (2) will apply because we are told that B Trust and its underlying entities have been in receipt of foreign source income since 2010 and as such there will be TPI and PFSI to match the £100,000 onward gift to.

If James, as a qualifying new resident, had not made a claim to have his foreign income treated as exempt from income tax, he would be taxable on the onward gift he received and the onward payment made to Brian would not be treated as an onward gift for the purpose of the benefits charge.