TSEM4655 - Settlements legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2018 鈥� 5 April 2025: Charge on recipients of onward gifts basic conditions
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
The benefits charge at ITTOIA 05 S643A听works by charging tax听on a benefit received by an individual that can be matched with PFSI听(TSEM4635).听 The charge applies to an听individual听who is听the settlor or听a close member of the settlor鈥檚 family, depending on the circumstances.听
The scope of the benefits charge extends听further听to ensure that benefits matched to PFSI cannot escape a charge to tax by being routed through an individual who is not taxable on that income. This is known as the onward gift charge.听
The onward gift charge听applies where the conditions are met and the听final听recipient听(鈥渢he subsequent recipient鈥�)听of the onward gift is UK resident.听 The broad effect of the onward gift rules is that the non-taxable individual鈥檚 notional income under ITTOIA 05/S643A听is attributed to the individual in receipt of the onward gift, unless and to the extent that the first recipient is a remittance basis user and has听been taxed on the income because it has been remitted to the UK.听
The legislation dealing with this can be found at ITTOIA 05/S643I听through to S643M听and the following paragraphs look at how this legislation听works.听听听
This paragraph looks at ITTOIA 05/S643I听that sets out the basic conditions for when an individual is treated as the recipient of an onward gift.听 The charging provisions are contained within S643J to S643L.听
An individual is the recipient听of an onward gift听(known as subsequent听recipient) if听the following conditions are met鈥撎�听
an amount is treated by ITTOIA 05/S643A(1)(a), both before and after the application of S643A (3) and (4), as income of听an individual (鈥渢he original beneficiary鈥�) in a tax year (鈥渢he matching 测别补谤鈥�),听or听
An amount having been treated by S643A (1) before the application of S643A (3) and (4) as income of听an individual (鈥渢he original beneficiary鈥�) for the tax year (鈥渢he matching 测别补谤鈥�), is treated as income of the settlor for the matching year, or听
is treated by S643A(1)(b), before the application of S643A (3) and (4) as income of the individual (鈥渢he original beneficiary鈥�) for a tax year (鈥渢he matching year鈥�) but听is not treated by S643A (3) and (4) as income of the settlor for the matching year.听
And -听
under听S643G (if it applied for the purpose) the amount would be matched with a benefit provided in the matching year, or an earlier year,听and听
when听the benefit is provided to听the original beneficiary there are arrangements, or an intention听to directly or indirectly pass听on of听the whole or part of that benefit to another person.听 It is reasonable to expect that the subsequent听recipient will be UK resident when they receive at least part of what is passed to them.听
the original beneficiary makes听鈥渢he onward payment鈥�听(either directly or indirectly)听to 鈥渢he subsequent recipient鈥�听within 3 years of the benefit being provided听to them, or听at any time before the benefit is provided to them and it is reasonable to assume听that it was made in anticipation of them receiving the original听benefit, and听听
the gift is of or includes the whole or part of the benefit听or anything that derives from or represents听the whole or part of the benefit听听
In a case where:听
the original beneficiary is non-UK resident for the matching year, or听a remittance basis user and听none of the amount is听relevantly remitted before听the onward payment is made, or听
the settlor is a remittance basis user for the matching year and none of the amount in relevantly remitted before听the tax year in which the onward payment is made, and听
The subsequent听recipient听is the settlor, or a close member of the settlor's听family听at the time听the onward payment is made,听or the time the original benefit is provided if the onward payment is made prior to that听听
Then S643J-S643L will apply,听and the onward gift charge will arise to the subsequent听recipient.听
Where income is taxed by reference to S643J-L it will not then be听treated as income of the individual or settlor at in a later tax year.听