INTM603440 - Transfer of assets abroad: Non-domiciled and deemed domiciled settlors from 6 April 2017 to 5 April 2025: Changes to calculation of benefits charge
Source: gov.uk (2025-04-07)


If an individual receives a benefit under ITA07/S732 the amount of income to be subject to tax is calculated using the six steps as set out in ITA07/S733(1). The steps are as follows:

Step 1 – the total benefits

Identify the amount or value of such benefits received by the individual in the tax year and in any earlier tax year in which ITA07/S732 has applied. The benefits of an earlier year to be taken into account are those of a tax year
- in which there has previously been a benefit charge, or
- in which there would have been a benefit charge but for an insufficiency of relevant income to match against benefits received.
Benefits provided to a transferor before 6 April 2017 will not be included in the calculation of the transferor’s benefits for earlier years.

Step 2 – the total untaxed benefits

Deduct from the total benefits the total amount of income treated as arising to the individual under the benefits charge in any earlier tax years as a result of the relevant transfer or associated operations.

Step 3 – the relevant income of the tax year

Identify the amount of income which arises in the tax year to a person abroad and that, as a result of the relevant transfer or associated operations, can be used directly or indirectly for providing a benefit for the individual.

Step 4 – total relevant income

Add together the relevant income of the tax year and the relevant income of earlier tax years in relation to the individual.

Step 5 – the available relevant income

From the total relevant income deduct
- the amount deducted at Step 2 above (the total amount of income treated as arising to the individual under the benefits charge in any earlier tax years), and
- any other amount which may not be taken into account because of the no duplication of charges provisions at ITA07/S743 (see INTM602360 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm602360) onwards).
Step 6 – the income treated as arising

Compare
- the total untaxed benefits (Step 2), and
- the available relevant income (Step 5).
The amount of income treated as arising for the purpose of the benefit charge for any tax year is the lower of the total untaxed benefits or the available relevant income.

Example 1

Gary has been UK resident since 1999, but he is not UK domiciled. In 2010 Gary settled £5 million into a non-resident trust from which he can benefit. The trustees invest £4 million in overseas investments and purchase a holiday home in Spain for £1 million; the Spanish property is made available to Gary all year round. Each year the trustee’s income is £40,000.

It is assumed that the transfer of assets legislation applies so Gary will be liable to tax under ITA07/S720 on the income arising in the trust. However, Gary is a remittance basis user and as the trustees retain the income overseas Gary has no liability. In 2017 - 2018 Gary will be treated as UK deemed domiciled because he is a long-term resident (see INTM603220 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603220)). The income arising in the trust from 2017-2018 is protected foreign-source income (PFSI: see INTM603260 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603260)), so will not be assessable on Gary under ITA07/S720. However, Gary will be assessable under ITA07/S731 on any benefit that he receives during 2017 - 2018.

Gary has the use of the Spanish holiday home, and the value of the benefit is £50,000 per year.

2017 - 2018

Gary’s assessable income for the year 2017 - 2018 will be calculated, using the six steps referred to above, as follows:

Step 1: Total benefits = £50,000

Step 2: Total untaxed benefits = £50,000

(It should be noted that the benefits arising before 6 April 2017 are not included in the calculation as before this date Gary was not within the scope of ITA07/S731 (see ITA07/S733(1) Step 1).

Step 3: Relevant income of the year = £40,000

Step 4: Total relevant income (£40,000 x 8) = £320,000

(In calculating the total relevant income, the income arising in the years prior to 6 April 2017 is taken into account)

Step 5: Available relevant income = £320,000

Step 6: The income treated as arising to Gary in 2017 - 2018 will be £50,000.

2018 - 2019

Assuming the accommodation benefit is also provided in 2018 – 2019, and Gary also receives a capital distribution from the trust of £100,000, the assessable income will be calculated as follows:

Step 1: Total benefits (£150,000 + £50,000) = £200,000

(£50,000 was the benefit received in 2017/18 which is added to the benefit received in 2018/19)

Step 2: Total untaxed benefits (£200,000 - £50,000) = £150,000

(The income treated as arising calculated from 2017/18 of £50,000 is deducted from the total untaxed benefits)

Step 3: Relevant income of the year = £40,000

Step 4: Total relevant income (£40,000 x 9) = £360,000

Step 5: Available relevant income (£360,000 - £50,000) = £310,000

Step 6: The income treated as arising in 2018 - 2019 will be £150,000 with unmatched relevant income available of £160,000.

(As the available relevant income of £310,000 is more than the total untaxed benefits calculated in step 2, the charge for the tax year is the untaxed benefit)

Note

The Finance (No. 2) Act 2017 makes amendments to the step calculation with Step 2 being amended so that, for earlier years in which the individual was not UK resident, the amount to be deducted is restricted to amounts which are taxed on another individual because of the working of ITA07/S733A. The application of ITA07/S733A is looked at in INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500).

Example 2

Louise has been living in the UK since 2000, but she is not UK domiciled. In 2013 she settled a non-resident trust for the benefit of herself and her husband Nigel. Nigel is UK domiciled but not UK resident.

The trustees of the settlement purchased a property in Monaco for Nigel to live in. From 2017 - 2018 Louise is treated as being UK deemed domiciled. As the settlor of the trust, Louise will be assessable to tax on any benefits that she receives from the trust. She will also be assessable on any benefits that Nigel receives in 2017 - 2018 in respect of the use of the Monaco property; this is because Nigel is a close family member and he is non-UK resident (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)).

If Nigel becomes UK resident in 2018 – 2019, the benefit of the use of the property in Monaco will be assessable on him. As Louise was assessable on the benefit in 2017 - 2018 by virtue of ITA07/S733A (see INTM603500 (https://www.gov.uk/hmrc-internal-manuals/international-manual/intm603500)), the amount deducted in Step 2 as set out above will include the value of the benefit assessable on Louise in 2017 - 2018.