TSEM4660 - Settlements legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2018 鈥� 5 April 2025: Income treated as arising to recipient of onward gift

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

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

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

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

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

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

or听

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

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

  • 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.听

Charge on the subsequent听recipient听

This听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听recipient听if it relates to:听

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

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

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

Charge when the subsequent听recipient is a remittance basis user听

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

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

Example 1听

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

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

Example 2听

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

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