TSEM4665 - Settlements legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2018 鈥� 5 April 2025: Cases where deemed income attributed 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
This paragraph looks at ITTOIA 05/S643K which applies to situations where听the settlement income听is听passed from the original beneficiary to the subsequent recipient and there is no tax charge that arises in relation to听this onward gift, for example because the subsequent recipient听is not UK resident or is a remittance basis user and has not remitted the gift.听 The income is attributed听to the subsequent recipient听so that if they pass the gift on to a further subsequent recipient听it can be taxed under the onward gift rules on any further recipient within the chain if听they are UK resident and听if they are a remittance basis user听where听the gift (or part) is remitted to the UK.听It applies in situations where:听
S643I (1) applies and, either听
听the subsequent听recipient is non-UK resident for the gift year, or the matching year if听later, or听
the subsequent听recipient is UK resident in the gift year, and the matching year if later, and听
the remittance basis applies to the subsequent听recipient for the charging year and none or only part of the onward payment is remitted to the UK in the charging year.听
In these situations, ITTOIA 05/S643I(1)(a) has effect as if the subsequent听recipient were an individual to whom the income is treated as arising under ITTOIA 05/S643A(1)(a)听for the charging year.听 The amount of income is听equal to the amount of so much of the onward payment as is within:听
the whole or 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
and that is not treated as arising to the settlor under ITTOIA S643L, or where the subsequent听recipient is a remittance basis then only the part not remitted to the UK is included.听听
The effect of the above is that the onward payment is treated as if it were notional income arising to the subsequent听recipient.听 If that subsequent听recipient makes a further onward gift, then the onward gift rules can apply again to this gift.听 It should be noted that the matching and arrangements conditions do not need to be satisfied again.听听听
Example 1听
Johan is a beneficiary of a Guernsey discretionary trust.听 Johan is not resident in the UK.听 In the听tax听year 2019/20 Johan receives a capital distribution of 拢100,000 from the Guernsey discretionary trust.听 For the purpose of听the example,听it is assumed that there is sufficient protected foreign source income (PFSI) in the trust to match against the distribution in 2019/20.听听
In 2019/20 Johan makes a gift of the 拢100,000 that he received to Marcus.听 It is assumed that the conditions in ITTOIA 05/S643I听are met.听 During the year 2019/20 Marcus is not resident in the UK and as a result ITTOIA 05/S643K听will apply.听 Marcus is not chargeable to tax under ITTOIA 05/S643J听as he is not resident in the UK, the income is attributed under ITTOIA 05/S643A听as arising to Marcus. This means that should Marcus decide to gift the 拢100,000 or a part of it to another person ITTOIA 05/S643I听will apply,听and that other individual will potentially be assessable under the onward gift rules depending on their particular circumstances.听 As the matching of the benefit has occurred in 2019/20 there will be no requirement for any further matching in a later year.听
Example 2听
Catherine is the beneficiary of a Jersey discretionary trust.听 She is not resident in the UK.听 Catherine receives a capital distribution of 拢25,000 from the Jersey trust in the tax year 2019/20.听 For the purpose of听this example听we are assuming that the conditions for ITTOIA 05/S643I听applies.听 There is no PFSI in the Jersey trust to match against the benefit in 2019/20.听 Catherine makes a gift of the 拢25,000 she received to Phillip in 2019/20.听 Phillip is not resident in the UK in the year 2019/20, however, he is UK resident in the year 2020/21 but is also a remittance basis user during this year.听听听
During the year 2020/21 the Jersey trust receives PFSI in excess of听the 拢25,000 so the benefit received by Catherine is matched in 2020/21.听听听听听
Phillip does not remit any of the 拢25,000 gift that he received from Catherine in the year 2020/21 so ITTOIA 05/S643K听applies.听 The ITTOIA 05/S643A听benefit听arising to Catherine is therefore attributed to Phillip.听 By treating Phillip as having deemed ITTOIA 05/S643A听income means that ITTOIA听05/S643I听will apply should Phillip make a gift of any part of the 拢25,000 to another person.听
It should be noted that this sequence of ITTOIA 05/S643I听and ITTOIA 05/S643K听can apply听to any number of subsequent听recipients of onward gifts of the benefit that continue to be made during the three calendar years from when the original beneficiary received the benefit.听 This prevents an individual from avoiding a tax charge by routing the benefit through a number of听different recipients before the UK resident individual finally receives it.听听