TSEM4660 - Settlements legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2018 – 5 April 2025: Income treated as arising to recipient of onward gift
Source: gov.uk (2025-04-07)


The guidance on this page relates to the period 6 April 2017 - 5 April 2025. 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. Detailed guidance on the changes from 6 April 2025 can be found at TSEM4700 (https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4700)onwards.

TSEM 4655 looked at the basic conditions set out in ITTOIA 05/S643I that must apply to enable ITTOIA 2005/S643J to be considered. This paragraph looks at the specific circumstances where an onward gift is treated as the income of the recipient.

ITTOIA 05/S643J will apply a tax charge on the subsequent recipient if ITTOIA 2005/S643I(1) applies and either: -

the subsequent recipient is resident in the UK in the year of the gift, and

the subsequent recipient is resident in the UK for the matching year (if later than the gift year), and

the subsequent recipient is not a remittance basis user for the year of charge,

or

the subsequent recipient is resident in the UK in the year of the gift, and

the subsequent recipient is resident in the UK for the matching year (if later than the gift year), and

the recipient is a remittance basis user for the year of charge and the whole or part of the onward payment is remitted to the UK in the year of charge.

Charge on the subsequent recipient

This subsection has the effect of treating an amount of income equal to the amount or value of the onward payment as income of the subsequent recipient if it relates to:

the whole of part of the benefit received by the original beneficiary,

anything that derives in whole or in part either directly or indirectly, or represents the whole or part of that benefit, or

any other property, but only if the benefit is provided with a view to enabling or facilitating the making of the gift to the subsequent recipient.

Charge when the subsequent recipient is a remittance basis user

If the subsequent recipient is a remittance basis user, then only amounts remitted to the UK are treated as income of the subsequent recipient.

The amount of income to be treated as the onward recipient’s is reduced by any amount of that income that is assessable under any other provisions of the Taxes Acts.

Example 1

Both Charles and Madeleine are beneficiaries of the Madeleine Discretionary Trust. This is a non-resident trust settled by Madeleine when she was UK resident, but non-domiciled. Both Charles and Madeleine are resident in the UK in 2019/20, but Charles is not domiciled in the UK while Madeleine is deemed domiciled in the UK as a long stayer. Charles receives a capital distribution of £100,000 from the Madeleine Discretionary Trust into his Jersey bank account in 2019/20. Charles does not remit the funds to the UK but instead gifts the £100,000 he received to Madeleine. For the purpose of this example, it is assumed that all of the conditions in ITTOIA 05/S643I are met. No PFSI has arisen in the Madeleine Discretionary Trust and as there is no income to match no charge will arise on Madeleine.

Madeleine continues to be resident in the UK in 2020/21. In 2020/21 the trustees receive income of £150,000 which is PFSI. This PFSI will be matched to the benefit of £100,000 and Madeleine will be charged to tax under ITTOIA 05/S643J on the notional income arising to Charles which is treated as arising to her. The charging year will be 2020/21. Charles will not be chargeable to tax in a future year on the £100,000 distribution he received.

Example 2

Adriana is a non-resident beneficiary of a Jersey discretionary trust. In the tax year 2019/20 she receives a capital distribution from this trust of £50,000. She makes a gift of £30,000 of this distribution to Gregor in 2019/20 and he remits £15,000 to the UK. Gregor is UK resident but non-domiciled in the UK in 2019/20. He is also a remittance basis user. The Jersey discretionary trust has sufficient PFSI in the year 2019/20 to match with the distribution made. It is assumed for the purpose of this example that the conditions in ITTOIA 05/S643I have been met.

ITTOIA 05/S643J applies to Gregor as he is UK resident in 2019/20 the year in which the gift was made and is matched against PFSI. Gregor will be charged under ITTOIA 05/S643J on £15,000, that part of the notional income treated as arising to him which he has remitted to the UK during the year.