INTM602020 - Transfer of assets abroad: Non-domiciled individuals taxation up to 5 April 2025: The income charge - the position from 6 April 2008 to 5 April 2025
Source: gov.uk (2025-04-07)


Finance Act 2008 introduced major changes to the way in which a potential income charge under the transfer of assets provisions is affected by domicile status. These changes bring the position for income treated as arising to the individual under the transfer of assets provisions fully into line with the provisions that apply for the individual if the income were actually received directly by the individual.

The rules are contained in ITA07/S726 and S730 and are identical for each of the two income charging provisions. 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 on non-domiciled individuals only applies to the treatment of non-UK domiciled individuals for the years up to and including 2024 - 2025. Detailed guidance on the changes from 6 April 2025 and in particular the changes that have been made to ITA07/S726 and S730 can be found at INTM603645 and INTM603665 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603665).

Unlike the rules before 5 April 2008 these rules do not provide for any income to be excluded. Rather they set a ‘ring fence’ around those amounts to be taxed only when there is a relevant amount remitted to the UK.

The provisions apply if two conditions are met:
- the individual is not domiciled in the UK in the year (that is, the year for which an income charge would otherwise arise)
- the remittance basis applies to the individual for that year.
For details of when the remittance basis applies see the separate Remittance Basis and Domicile Manual (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm) and in booklet RDR1: Residence, domicile and the remittance basis (https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability) (gov.uk).

The way in which the provision works is:
- all the income that would otherwise be taxed under the income charge is considered
- income is designated as ‘foreign’ if, and to the extent that, it would be ‘relevant foreign income’ if it were the individual’s
- the amount of ‘foreign deemed income’ so determined is then treated as if it were ‘relevant foreign income’.
The result of this is that the ring-fenced amount regarded as ‘relevant foreign income’ is then charged to tax under the rules contained in Part 8 ITTOIA, and not under the transfer of assets income charge. The Part 8 rule charges tax for any tax year in which the individual is UK resident and, during which, any of the relevant foreign income is remitted to the UK. It does not matter whether the source from which the income arose exists when the income is remitted.

Detailed guidance on the operation of Part 8 ITTOIA is contained in the Remittance Basis and Domicile Manual (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm) and what is meant by ‘relevant foreign income’ is also determined from Part 8 ITTOIA (ITTOIAO5/S830).

To ensure that the remittance basis rules work as they should in relation to ring-fenced amounts, the transfer of assets provisions treat so much of the income arising to the person abroad that would be chargeable under the income charge, and which would be relevant foreign income if it were the individual’s, as deriving from the ‘foreign deemed income’ in applying the remittance basis rules in Chapter A1, Part 14 ITA 2007.

Detailed guidance on whether any relevant foreign income is remitted to the UK, and on what remitted to the UK means for the purpose of applying the remittance basis can be found in the Remittance Basis and Domicile Manual (https://www.gov.uk/hmrc-internal-manuals/residence-domicile-and-remittance-basis/rdrm).

The position is summarised by the following example.

Example

In Year 1, a resident but non-UK domiciled individual is potentially chargeable to tax under the income charge in respect of income of £1000, comprising £500 UK source and £500 foreign source income, all arising in the year to a person abroad. The foreign income is not received in the UK. The remittance basis applies for that year. In Year 3, there is a remittance to the UK of £800.

In Year 1 there is a potential charge under the transfer of assets income charge of £1000. However, as the remittance basis applies, £500 of the actual income would be relevant foreign income if received by the individual. The actual transfer of assets income charge is £500 and £500 is ‘ring-fenced’ for charge under Part 8 ITTOIA. Where any amount is remitted to the UK during the year which is a remittance for Chapter A1, Part 14 ITA 2007 (the Remittance Basis), then part or all of the ring-fenced amount may be charged under Part 8 ITTOIA in that year. In this example this would be £500.

Any untaxed amount remains, until and unless there is a further amount remitted to the UK within Chapter A1, Part 14 ITA 2007, that may trigger a charge under Part 8 ITTOIA in the tax year in which a remittance occurs. Here one would have to consider whether there has been a remittance to the UK in Year 1 and also Year 3 if any of the ring-fenced amount remained untaxed at the end of Year 1. Note that for the purpose of the example we are assuming that all the years concerned are after 2013-2014, and therefore an individual is potentially liable to the income charge if they are UK resident.

From April 2017 special rules were introduced for individuals who are not UK domiciled but who may have made transfers into non-resident trusts. Guidance on the treatment of such trust structures can be found in INTM603180 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603180) onwards.

For the benefits charge on individuals who are non-UK domiciled see INTM602100 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602100).