TSEM4730 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025: Example 鈥� PFSI, TTI and the benefits charge鈥�

Ms B is resident in the UK听but has never been classed as UK domiciled or deemed听domiciled in the UK under condition A.听She was taxed on the remittance basis each year up to and including 2024/25.听听In 2012/13听she settled foreign investments into a Jersey resident trust of which she was a beneficiary.鈥� From 6 April 2013听to 5 April 2025 the trustees received income on their听investments of 拢400,000 per year.鈥� No distributions were made during this period. The income from 6 April 2013听to 5 April 2017 would have been treated as Transitional Trust Income (TTI) under old section 628C ITTOIA 2005 and the income from 6 April 2017 to 5 April 2025 would have been treated as Protected Foreign-Source Income (PFSI) under old听section 628A ITTOIA 2005 because:鈥��听

  • the income would have been relevant foreign income if it were income of a UK resident individual,鈥赌��听

  • the income was from property that originated听from the settlor,鈥赌�听

  • when the settlement was created Ms B was not UK domiciled,鈥赌�听

  • there is no time in the relevant tax years听that Ms B was UK domiciled, or deemed听domiciled in the UK under Condition A,鈥赌�听

  • the trustees were not UK resident for the relevant tax years,鈥赌�听

  • no further property or income was provided for the purpose of the settlement by Ms B, either directly or indirectly.鈥���听

Ms B will not have been taxable on the 拢400,000 of income in each of the years 2013/14听to 2024/25 because the income听is PFSI or TTI听and was not matched with a benefit taxable on her听or remitted tot the UK.鈥� From听the year 2025/26 Ms B will be taxable on the income of the trust as it arises听each听tax year, because from 6 April 2025听the remittance basis of taxation and the concept of PFSI no longer applies. From this date, all UK residents are taxed on the arising basis.听

In 2025/26 Ms B is taxable on the income received by the trustees听in that tax year as it arises under section 624 ITTOIA 2005.听 She also receives a distribution from the Jersey Trust of 拢5 million, paid from the pre-2025 income,听to purchase听a property.鈥�� 拢400,000 of TTI has arisen to the trustees each year from 2013/14听through to 2016/17, amounting to 拢3.2 million and 拢400,000 of PFSI has arisen to the trustees each year from 2017/18 through to 2024-25, amounting to 拢3.2 million. There is a total of 拢6.4 million TTI/PFSI available to match against this distribution.鈥� As there is sufficient TTI/PFSI to match against this distribution Ms B will be taxable听under section 643A ITTOIA 2005听on the benefit of 拢5 million she receives in 2025/26.鈥疶his will leave 拢1.4 million of TTI/PFSI available to be matched against any future benefits.鈥�听Income received by the trustees after 2025/26 will听not be PFSI and so will not add to this PFSI pool.听

In 2026/27 Ms B is taxable on the income received by the trustees in that tax year as it arises under section 624 ITTOIA 2005.听 She also receives a further distribution of 拢1 million from the trust (also paid to her from the pre-6 April 2025听income) to assist听in renovating the property.鈥� As sufficient TTI/PFSI remains听to match against this distribution Ms B will be taxable under section 643A ITTOIA 2005 on the benefit of 拢1 million she receives in 2026/27.鈥疶his will leave 拢400,000 of TTI/PFSI available to be matched against any future benefits.鈥�听

In 2027/28 Ms B receives a further distribution of 拢600,000 from the trust (also paid to her from the pre-2025 income) to assist听in additional听renovations to the property. Ms B will be taxable听under section 643A ITTOIA 2005听on 拢400,000 of this capital distribution as there is only听拢400,000 of TTI/PFSI remaining听in the trust to be matched against the 拢600,000 she received.听

Ms B听can designate听the amounts taxable on her听under section 643A ITTOIA 2005 under the Temporary Repatriation Facility (TRF), which is available from tax years 2025/26 through to 2027/28.听 The amounts taxed on her in relation to the income received by the trustees in the tax years 2025/26 onwards cannot be designated听under the TRF.听听