TSEM4645 - Settlements legislation Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2017 鈥� 5 April 2025: Meaning of 鈥渁vailable protected income鈥� in S643A
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.鈥� Detailed guidance on the changes from 6 April 2025 can be found at TSEM4700 onwards.听
Benefits paid to the settlor or close family member can only be taxed when there is 鈥榓vailable protected income鈥� to match it with.听
A settlement has available听protected income where PFSI 鈥� TOAA > TI听and the available protected income will be equal to PFSI 鈥� TOAA 鈥� TI.听
PFSI is the total of:听
Any protected foreign-source income arising under the settlement in the current year, or any previous year, ignoring ITTOIA 05 / S648 (3) 鈥� (5).听
That would be treated under S624 as the settlor鈥�s income, had听it not been for听S628A (exceptions for foreign source income).听 S648 (3) 鈥� (5) do not apply for this purpose.听
That can be used directly or indirectly to provide benefits听for the individual, on which the individual is not liable听to income tax (ignoring any liability under S643A)听
PFSI has the meaning given by S648A (2) 鈥� (13)听and S628B, so the conditions A听through to F are met听and tainting has not occurred.听
Or听
Any protected foreign-source income arising under the settlement in the current year, or any previous year听
That would be treated under S629 as the settlor鈥�s income, had it not been for S630A (exceptions for foreign source income)听听
Where the relevant child is not liable to income tax听
TOAA is as much of the PFSI where tax has been charged under the TOAA (Transfer of Assets Abroad) legislation听in respect of benefits provided by the trustees in the year, or an earlier year.听
TI is the total of:听
As much of the PFSI that has been treated as income in respect of benefits provided to the individual, or other individuals, under S643A, S643J or S643L in an earlier tax year听
The definition of PFSI for the purpose of calculating the API听
Example 1听
Gary has been resident in the UK for 18 years,听but he is not domiciled in the UK.听 In 2011 Gary settled 拢5 million into a non-resident trust from which he is able to听benefit.听 The trustees invest 拢4 million in overseas investments and purchase听a holiday home in Spain for 拢1 million which is made available to Gary all year round.听 Each year the trustee鈥檚 income is 拢80,000.听
In 2017/18 Gary will be treated as deemed听domiciled in the UK because he is a long-term resident.听 The income arising in the trust is protected foreign source income (PFSI) so will not be assessable on Gary under ITTOIA 05/S624.听 However, Gary will be assessable under ITTOIA 05/S643A on any benefit that he receives from 2018/19听onward.听
Gary has the use of the holiday home in Spain and the value of the benefit is 拢50,000 per year.听 Gary鈥檚 assessable income for the year 2018/19 will be calculated, using the steps referred to above, as follows:听
Total benefits = 拢50,000听
Total untaxed benefits = 拢50,000听
(It should be noted that the benefits arising before 6 April 2018 are not included in the calculation as before this date there was no benefit charge under听ITTOIA 05/S643A- however he may be assessable under the Transfer of Assets Abroad legislation.听
Available protected听income of the year = 拢80,000听
Total available protected听income (拢80,000 x 2听years听(2017/18听- 2018/19) = 拢160,000听
The income treated as arising to Gary in 2018/19听will be 拢50,000.听
Assuming that the accommodation benefit is also provided in 2019/20,听and Gary also receives a capital distribution from the trust of 拢100,000 the assessable income will be calculated as follows:听
Total benefits (拢150,000听(2019/20)听+ 拢50,000听(from 2018/19) = 拢200,000听
Total untaxed benefits (拢200,000 - 拢50,000) = 拢150,000听
Available protected income听of the year = 拢80,000听
Total Available protected听income听accrued听(拢80,000 x 3) = 拢240,000听
Available protected听income (拢240,000 - 拢50,000) = 拢190,000听
The income treated as arising in 2018/19 will be 拢150,000. The unmatched available protected听income听still available is reduced to 拢40,000.听