TSEM4740 - Settlements Legislation: Rules affecting non-domiciled and deemed domiciled settlors of non-resident trusts from 6 April 2025 : Example 鈥� PFSI, the benefits charge and the 4-year FIG regime

Miss E has been resident in the UK since July 2022 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. In 2023/2024, she settled foreign investments into a Jersey resident trust of which she was a beneficiary.听From 6 April 2024 to 5 April 2025 the trustees received income on its investments of 拢250,000.No distributions were made during this period. This income would have been treated as Protected Foreign-Source Income (PFSI) under the old section 628A ITTOIA 2005 because:听

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

  • the income was from property that originated from the settlor,听

  • when the settlement was created Miss E was not UK domiciled听or,听because the settlement听was created after 6 April 2017,deemed听domiciled in the UK听

  • there was no time in the relevant tax years that Miss E was UK domiciled, or deemed听domiciled in the UK under Condition A,听

  • the trustees were not UK resident for the relevant tax years,听

  • Because Mrs E was not domiciled or deemed听domiciled in the UK no further property or income could have been provided听by her听for the purpose of the settlement ,听either directly or indirectly听at a time when she was domiciled or deemed听domiciled in the UK.听

Miss E was not taxable on the 拢250,000 of income in the year 2024/25 because听it was PFSI and was not used to provide a benefit to her.听From the tax year 2025/26 Miss E will be taxable on the income of the trust as it arises per tax year, because from 6 April 2025 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on all foreign income and gains.听

However, Miss E only moved to the UK in July 2022, so she is a qualifying new resident, eligible to claim relief under the 4-year FIG regime for 2025/26 as she is within her first 4 tax years听of residence in the UK. This means that she will be able to claim relief from tax chargeable under section 624 ITTOIA 2005 on the 拢250,000 of income arising in 2025/26. For the tax year 2026/27 onwards, Miss E will no longer be a qualifying new resident and will not be eligible to claim relief under the 4-year FIG regime.听 She will pay tax on the income arising under the settlement on the arising basis.听

In 2025/26 Miss E receives a distribution from the Jersey Trust of 拢200,000, to renovate a 辫谤辞辫别谤迟测.鈥赌�This is paid from the income which arose in 2024/25 and was retained听in the settlement听as PFSI.听

The full 拢200,000 forms Miss E鈥檚听鈥榰ntaxed benefits total鈥� calculated by the steps in section 643B ITTOIA 2005 because the amount was provided to Miss E when she was UK resident, and no deductions are required to听be made under step 3.听

The settlement has 拢250,000 in 鈥楢vailable Protected Income鈥� as determined听by section 643C ITTOIA 2005 because PFSI of that amount arose under the settlement in the year 2024-25 and no deductions are required听in relation to steps 2 through to 4, nor added due to step 5.听 This means that the 拢200,000 paid to Miss E can be matched against the API and she would be subject to income tax on that amount听had she not been听eligible for and claimed听relief under the 4-year FIG regime.听

Miss E remains听resident in the UK and in 2029/30听receives听a听further benefit of 拢50,000.听 When calculating the API of the settlement the value of the benefit paid to Miss E of 拢200,000 in 2025/26 is added back to the PFSI at step 5 of S643C ITTOIA 2005, meaning that there is still 拢250,000 of API available for matching.听Miss E will be taxable on听拢50,000 of this capital distribution under section 643A ITTOIA 2005 as this is her 鈥榰ntaxed benefits total鈥�, per section 643B ITTOIA 2005 and there is 拢250,000 of API in the trust to be matched against. This will leave 拢200,000 of API听in the trust to be matched against future benefits.听